A bond trading strategy that is used to gain profit by changing yield spreads among different sectors of the bond market. The sectors may be defined by type of industry, public versus private issuer, coupon size, and so forth. With a sector swap, one trades a type of bond currently in favor for a type currently out of favor in the belief that the yield differences are only temporary. The sale of utility bonds and subsequent use of the funds for the purchase of industrial bonds is a sector swap.
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.