An investor who may want to delay or accelerate the timing of cash flows would be motivated by bond swapping.

Question

Quizplus · Accepted Answer

A tax swap may be valuable for portfolio investors or individuals to swap bonds in order to delay or accelerate the timing of cash flows.For example,if the current year is a high-tax year it may be better to move out of high coupon-paying bonds and into low coupon-paying bonds,thus transferring current coupon income into future capital gains.Although both income and capital gains are taxable,capital gains are not paid until realisation of the gain.Hence,there may be tax benefits in generating capital gains rather than coupon income.

An Investor Who May Want to Delay or Accelerate the Timing