Buying & Selling Bonds

Bond Swapping

A bond swap is a technique whereby an investor chooses to sell a bond and simultaneously purchase another bond with the proceeds from the sale. Fixed-income securities make excellent candidates for swapping because it is often easy to find two bonds with similar features in terms of credit quality, coupon, maturity and price.

In a bond swap, you sell one fixed-income holding for another in order to take advantage of current market and/or tax conditions and better meet your current investment objectives or adjust to a change in your investment status. A wide variety of swaps are generally available to help you meet your specific portfolio goals. Note that interest rate swaps are different financial instruments, derivatives, and not what is being referred to here. The bond swaps we are focused on here are sometimes known as bond switches.

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