Fixed-Income Arbitrage
An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income arbitrage strategy, the investor assumes opposing positions in the market to take advantage of small price discrepancies while limiting interest rate risk. Investopedia Says:
Fixed-income arbitrage is primarily used by hedge funds and leading investment banks. The most common fixed-income arbitrage strategy is swap-spread arbitrage. This consists of taking opposing long and short positions in a swap and a Treasury bond. Such strategies provide relatively small returns and, in some cases, huge losses. That's why these strategies are often referred to as "picking up nickels in front of a steamroller"! Related Terms:
Arbitrage
Fixed-Income Security
Hedge
Hedge Fund
Interest Rate Risk
Interest Rate Swap
Negative Arbitrage
Swap
Swap Spread |