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 ?
Amounts due under the interest-rate swap on cover assets rank senior to the payments under the covered bond swap, but are not sized in the reserve fund.
The original plan was to issue $1 billion in new money on top of a $1-billion bond swap.
MI), are planning to convert debt they received as part of a bond swap the bank carried out, into the bank's shares.
ConocoPhillips said in an October 6 filing PDVSA operations, including an ongoing bond swap that uses shares in Citgo Holding as collateral, are part of an effort to prevent Conoco from collecting compensation in a dispute over a 2007 nationalization of its Venezuela holdings.
With regard to the action filed Thursday October 6 by ConocoPhillips in Delaware, in which it objects to a financing operation of CITGO Holding and the current bond swap operation, Petrleos de Venezuela, S.
It would prefer to have the roadshow after it launches a domestic bond swap, which can happen as early as this month, Tan said.
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.
The Finance Minister Haris Georgiades was quick to point out on Friday that 'selective default' was a technicality and temporary and linked to the procedures of the bond swap.
22 May 2012 - The shareholders of Greece's Alpha Bank gave the greenlight on Tuesday to its plan to terminate a planned tie-up with domestic peer Eurobank Ergasias due to the impact of the country's bond swap deal on the two lenders.
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's high debt, low growth prospects and a recent bond swap could harm its chances of getting back to the markets in 2015, leaving it in need of a third bailout, the EU has said.