Rate Anticipation Swap

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DEFINITION of 'Rate Anticipation Swap'

A type of swap in which bonds are exchanged according to their current duration and predicted interest rate movements. A rate anticipation swap is often made in order to take advantage of more profitable bond opportunities. Rate anticipation swaps are speculative in nature, since they depend on the outcome of the expected interest rate change. Various bond types respond differently to rising or falling interest rates and those who participate in rate anticipation swaps generally choose bonds based on performance.

INVESTOPEDIA EXPLAINS 'Rate Anticipation Swap'

As an example, investors may swap short-term bonds for long-term bonds if interest rates are expected to decline. Conversely, investors may swap longer-term bonds for short-term bonds if interest rates are expected to rise. A swap is an exchange of one security for another to change the maturity, the quality of the issues in a bond portfolio, or due to a change in the investor's goals and strategies.

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  3. How can an investor make money from a decline in the electronics sector?

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  4. How can an investor profit from a decline in the aerospace sector?

    Several forms of speculation enable investors to profit from a decline in the aerospace sector. Short selling aerospace stock ... Read Full Answer >>
  5. What are interest rate swaps on the OTC market?

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