What is a Bond Swap?
Many local retirees use bonds to provide themselves with stable income. While the income may be steady, the market values of the bond portfolios fluctuate as interest rates rise and fall (and market value will fluctuate if sold prior to maturity.) As the Fed dropped interest rates early in the decade to help stimulate the economy out of recession, bond prices generally increased. However, since the recovery, the Fed has increased rates sending bond prices lower. While the income remains the same, the value of the bonds has decreased. So what is a bond swap and how may it be beneficial? Bond swapping involves selling a bond you currently own and using the proceeds to purchase a different bond. There are several reasons to swap a bond such as, building a more diversified bond portfolio, strengthening call protection, adjusting credit quality or, the most popular, establishing a tax loss. This can be a useful tactic in taking advantage of a decrease in the value of a bond. By selling a bo
A bond swap is a situation in which a bondholder makes a decision to sell one or more currently held bonds and purchase other bonds that are considered to be of equal or similar market value. Both the purchase and the sale take place around the same time, effectively exchanging or swapping one bond or set of bonds for new ones. There are several reasons why an investor may choose to engage in a bond swap. One of the more common motivations for engaging in a bond swap is in order to sell off a bond at the end of a calendar year. Often, this will be a bond that is performing below expectations, and may even be sold at a loss. The sale creates a tax write-off, as well as providing the revenue to purchase another bond of similar value that is showing promise of strong performance in the near future. This practice of unloading a bond that is not performing well for one of similar value that is anticipated to make a profit helps to keep the overall value of the investment portfolio stable. T
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.
