Matrix trading

Matrix trading

Swapping bonds in order to take advantage of temporary differences in the yield spread between bonds with different ratings or different classes.

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matrix trading

Swapping bonds of different classes or risk levels to take advantage of unusual differences in yield. For example, during a period when the difference between yields on AAA and AA bonds is especially small, an investor swaps AA bonds for AAA bonds to pick up added safety at a small sacrifice in yield. When the difference in yields widens, the investor then swaps back to the higher-risk, higher-yielding AA-rated bonds.

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Matrix trading

An investment strategy involving profiting from unusual yield curves on different-rated bonds. For example, when a junk bond and an investment-grade bond have, by some anomaly, similar yields temporarily, an investor owning a junk bond may initiate a bond swap and purchase the investment-grade bond with the proceeds. When the yield curves return to normal, the investor swaps them back. This allows the investor to have the greatest possible yield at the lowest possible risk. See also: Fixed income market.

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Matrix trading. Matrix trading occurs when the yield spread between two categories of bonds with different levels of risk is temporarily inconsistent with what that spread would normally be, prompting traders to try to capitalize on an unusual situation by initiating a bond swap.

For example, such a swap might involve long-term corporate bonds with high ratings and those with low ratings or bonds with longer terms and those with shorter terms.