Bond swap

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Bond swap

The sale of one bond issue and purchase of another bond issue simultaneously. See: Swap; swap order.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Bond Swap

A situation in which one sells a bond while buying another bond at the exact same time. One may conduct a bond swap for any number of reasons, such as to receive a better coupon, to increase or decrease risk, or to attain a tax advantage from the sold bond and maintain a diversified portfolio with the bought bond. See also: Swap.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

bond swap

The selling of one bond issue and concurrently buying another issue in order to take advantage of differences in interest rates, maturity, risk, marketability, and other factors. In some instances, especially with municipals, bond swaps are undertaken in order to realize losses for tax purposes. See also intermarket spread swap, rate anticipation swap, reverse swap, substitution bond swap, tax swap.
How can I obtain a tax benefit from a bond swap?

Bond swaps are done for many reasons (such as to improve income, improve quality, change maturity schedule, or enhance diversification). Thus, if the bond swap is worthwhile, it will be done for various economic reasons rather than simply for tax benefits. (Of course, there is nothing wrong with obtaining a tax benefit at the same time.) A tax benefit is often realized when an investor sells bonds that were acquired during a period when interest rates were lower than they were at the time of the swap. Because interest rates rose, bond prices fell, and the seller is able to generate a tax-deductible capital loss. The tax savings may be viewed as an ancillary benefit derived from the bond swap. A word of caution is in order, though: if you are considering a bond swap that will generate a tax-deductible capital loss, do not swap into a security classified by the Internal Revenue Service as basically identical to the one you sold until the appropriate time period has passed. Otherwise, the loss will be disallowed for tax purposes.

Stephanie G. Bigwood, CFP, ChFC, CSA, Assistant Vice President, Lombard Securities, Incorporated, Baltimore, MD
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Bond swap.

In a bond swap, you buy one bond and sell another at the same time.

For example, you might sell one bond at a loss at year's end to get a tax write-off while buying another to keep the same portion of your portfolio allocated to bonds.

You may also sell a bond with a lower rating to buy one with a higher rating, or sell a bond that's close to maturity so you can buy a bond that won't mature for several years.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
From 2010,the EU Commission, ECB, IMF "troika" granted loans and bond swaps to eight member states to assist the bailout of banks and financial systems.
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Banks have pledged to shoulder part of the burden through bond swaps, but much of the details still need to be agreed.
However, markets have rounded on Italy and Spain in the wake of moves to make bondholders share in the cost of the crisis, whether through rollovers, bond swaps or haircuts, a move insisted on by Germany to shield taxpayers from further costs.
In the newspapers, talk of bond swaps, bailouts and the dreaded D-words--default and devaluation--periodically rock the faith of Argentina's 36 million consumers.
A reserve fund has also been established to cover three months' interest payments on the covered bond swaps and one quarter of annual senior expenses, in addition to GPB7.0 million to cover amounts due under the asset swap that rank senior to the payments under the covered bond swaps.
According to Euromoney, Purisima has also taken "gutsy measures" to protect the local economy amid a downturn in developed markets, including bond swaps conducted in July 2011 and December 2010.