Rate Anticipation Swap


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.

BREAKING DOWN '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.

  1. Swap

    A derivative contract through which two parties exchange financial ...
  2. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Interest Rate

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

    Selling one debt instrument in order to use the proceeds to purchase ...
  5. Duration

    A measure of the sensitivity of the price (the value of principal) ...
  6. Hedge

    Making an investment to reduce the risk of adverse price movements ...
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