is aninvestmentstrategy generally associated withhedge funds, which consists of the discovery and exploitation of inefficiencies in the pricing of bonds, i.e. instruments from either public or private issuers, yielding a contractually fixed stream of income.

Mostarbitrageurswho employ this strategy trade globally.

In pursuit of their goal of both steady returns and low volatility, the arbitrageurs can focus uponinterest rate swaps, US non-US government bond arbitrage,US Treasury securities, forwardyield curves, and/ormortgage-backed securities.

The practice of fixed-incomearbitragein general has been compared to picking up nickels in front of a steamroller. However, despite this notion, some research has shown that consistent excess returns may be earned with this approach, and as more hedge fund capital is allocated towards these strategies, excess returns will begin to diminish.1

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This page was last edited on 20 May 2019, at 19:42

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