Fixed income arbitrage
What is fixed income arbitrage?
Fixed income arbitrage is an investment strategy that aims to profit from the small differences in interest rates between fixed income securities (stocks, bonds and other investments).
The practice involves an investor purchasing a security at a low price and reselling it at a higher price within a matter of seconds.
Where have you heard about fixed income arbitrage?
You may not have heard this term before as it’s primarily used by investment banks and hedge funds.
What you need to know about fixed income arbitrage.
Fixed income arbitrage is designed to provide investors with a fixed return for an agreed period of time. During this time they’ll receive a regular fixed income, after which the initial amount borrowed will be repaid.
Fixed income securities tend to be issued by banks, governments and global corporations that need to raise money for extended periods of time.
Due to the nature of buying security and reselling it, there’s a risk that its price may decrease and a loss may occur. Another risk is that an issuer is unable to maintain its fixed payments, or is unable to repay the investment in full at the end of the term.
Find out more about fixed income arbitrage.
Fixed income arbitrage requires fast trading and extensive investment experience. As an investor you should seek the advice of a hedge fund manager before exploring fixed income arbitrage.