Bond swap

Bond swap

The sale of one bond issue and purchase of another bond issue simultaneously. See: Swap; swap order.

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.

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

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.

References in periodicals archive ?
The reserve fund covers three-month payments under a covered bond swap and three-quarters of senior expenses plus a fixed amount of GBP600,000.
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A bond swap is a common investment strategy which involves selling one bond and immediately purchasing another with the proceeds.
A bond swap is not a trade, like an exchange of baseball cards.
FITCH Ratings on Friday downgraded Cyprus to 'restricted default' status following the government's bond swap procedure, but the finance minister was quick to reassure the public that this was just a technicality and did not mean that the government had gone bankrupt.
In a statement, the government linked the request to the severe losses borne by Cypriot banks after a 206 billion Greek bond swap wiped more than half the value off their holdings of Greek sovereign debt.
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Huge bond swap writedowns to cut the country's debt nearly wiped out the capital base of National Bank, Alpha, Eurobank and Piraeus, all of which have Cyprus subsidiaries, which need to meet a 9% Core Tier 1 capital ratio target by September.
Greece averted the immediate threat of an uncontrolled default on Friday when enough private creditors agreed on a bond swap deal that will cut the country's public debt and clear the way for the new bailout.