Rate Anticipation Swap

AAA

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.

RELATED TERMS
  1. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  2. Bond Swap

    Selling one debt instrument in order to use the proceeds to purchase ...
  3. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  5. Swap

    Traditionally, the exchange of one security for another to change ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
Related Articles
  1. Investing Basics

    How Interest Rates Affect The Stock Market

    Whether you're buying lunch, a home or a stock, you're influenced by interest rates.
  2. Bonds & Fixed Income

    Understanding Interest Rates, Inflation And The Bond Market

    Get to know the relationships that determine a bond's price and its payout.
  3. Options & Futures

    An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.
  4. Bonds & Fixed Income

    The Advantages Of Bond Swapping

    This technique can add diversity to your portfolio and lower your taxes. Find out how.
  5. Active Trading

    An In-Depth Look At The Swap Market

    The swap market plays an important role in the global financial marketplace; find out what you need to know about it.
  6. Investing Basics

    What Investors Should Know About Interest Rates

    Understanding interest rates helps you answer the fundamental question of where to put your money.
  7. Options & Futures

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  8. Options & Futures

    Advantages Of Trading Futures Over Stocks

    We look at the top eight advantages of trading futures over stocks.
  9. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.
  10. Options & Futures

    Why Trading Coffee Futures Is A Zero Sum Game

    Coffee futures trading is as close to a zero-sum game as you might find in investing. We look at the risks and rewards.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center