What is a bond swap?
It is a financial transaction in which an investor sells holdings of one bond and immediately reinvests the proceeds in another bond. There are a number of reasons, such as improving the quality of their portfolio and for tax planning purposes, for someone to undertake a bond swap.
Where have you heard about bond swaps?
Your financial adviser may suggest a bond swap, as may your accountant in the event that a swap could improve your tax position. Specialist investment publications will reference bond swaps from time to time, and they will feature in how-to investment guides.
What you need to know about bond swaps.
A bond swap is the near-instantaneous sale of one type of bond and the purchase of another using the sale proceeds. It may be undertaken for a number of reasons, such as taking advantage of a change in interest rates or bonds being highly sensitive to shifts in borrowing costs. There also may be a tax rationale for moving from one type of bond to another. Last but not least, a bond swap may be undertaken to improve the quality of a portfolio and the expected return for the investor.
Find out more about bond swaps.
To learn more about bonds, see our definition of a bond prospectus.