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.
References in periodicals archive ?
This applies not only to trading government bonds, corporate bonds, interest rate swaps and credit default swaps but also for executing various fixed income arbitrage strategies.
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.
Daniels Webster s extensive financial industry experience includes serving as Executive Vice President, JPMorgan Chase s firm-wide Market and Fiduciary Risk Management until 2005, and prior to that as the global head of US Dollar Fixed Income Derivatives at UBS and head of Fixed Income Arbitrage trading at Chase Manhattan Bank.
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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