rate anticipation swap

Rate Anticipation Swap

A type of swap in which bonds are swapped according to their current duration and predicted interest rate movements.

Notes:

Investors will usually participate in these swaps to maximize profits from favorable interest rate movements and minimize losses from unfavorable movements.

For example, bonds with higher duration generally exhibit higher price fluctuations when an interest rate changes. If interest rates are expected to decline, investors would swap for bonds with a higher duration in order to maximize potential gains from the price movement.

See also: Bond Swap, Duration, Interest Rate, Swap

---

rate anticipation swap

The sale of one bond combined with the purchase of another bond of different maturity in order to take maximum advantage of expected changes in interest rates. For example, an investor would want to trade short-term bonds for long-term bonds if interest rates were expected to fall, because the price of the long-term bonds would rise more than the price of the short-term bonds.