__________ requires an investor to identify bonds with superior returns and similar characteristics to existing bonds,and to liquidate current bonds and purchase higher yielding bonds.

A) Security selection
B) Market timing
C) Riding the yield curve
D) Bond swapping

Question

__________ requires an investor to identify bonds with superior returns and similar characteristics to existing bonds,and to liquidate current bonds and purchase higher yielding bonds.

A) Security selection
B) Market timing
C) Riding the yield curve
D) Bond swapping

Quizplus · Accepted Answer

Bond swapping involves two procedures.First,bonds are identified that possess superior returns but similar characteristics to other bonds.Second,the investor then liquidates currently held bonds and purchases higher yielding bonds.For example,a bond portfolio may include NSW Treasury Corporation bonds.At the same time,similar Queensland Treasury Corporation bonds may be paying higher yields such that portfolio returns could be increased by liquidating the NSW Treasury Corporation bonds and replacing them with Queensland Treasury Corporation bonds.Effectively,this strategy relies on a degree of market mispricing.

__________ Requires an Investor to Identify Bonds with Superior Returns