Fixed-Income Arbitrage

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Fixed-Income Arbitrage

An arbitrage strategy in which one seeks to profit from small differences in interest rates between two bonds or other fixed-income securities that are otherwise essentially the same. One conducts this by taking opposite positions in the two securities. Fixed-income arbitrage rarely results in a large profit and can be quite risky. As a result, many analysts advise against using it.
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References in periodicals archive ?
Fixed Income Arbitrage 0.08 percent -0.20 percent 0.44 percent
Most of the firm's offerings aim to replicate the risk-adjusted return characteristics of hedge funds using strategies that include long/short equity, global macro, market neutral, event-driven, fixed income arbitrage, emerging markets and others commonly used by hedge fund managers.
QIA aims "to replicate the risk-adjusted return characteristics of hedge funds using various hedge fund investment styles, including long/short equity, global macro, market neutral, event-driven, fixed income arbitrage and emerging markets," according to its website.
The HFRI Relative Value Arbitrage Index posted a gain of +0.21 per cent, the fifth consecutive monthly gain for this index, with positive contributions from Fixed Income Arbitrage, Volatility Arbitrage and Asset Backed exposures.
This fund seeks to replicate "the risk-adjusted return characteristics of the overall hedge fund universe." It tracks a composite index that is based on sub-indices for six different hedge fund strategies: emerging markets, long/short equity, global macro, market-neutral, eventdriven and fixed income arbitrage.
Top performers included Fixed Income Arbitrage (+5.5 per cent), Global Macro (+4.2 per cent) and Event Driven (+1.8 per cent).
Risk and return in fixed income arbitrage: Nickels in front of a steamroller?
Over this period the average monthly Sharpe ratios range from -0.03 for short sellers to 0.42 for Fixed Income Arbitrage funds.
Stark contrasted the historical performance of five indices against the S&P 500 and the Lehman High Yield Credit Bond Index over the past 10 years -- convertible arbitrage, distressed securities, the equity market neutral index, the fixed income arbitrage and the merger arbitrage.
In July RMF GEM invested $50 million in the flagship product of 5:15 Capital Management, an unrelated fixed income arbitrage manager based in Connecticut.

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