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Explain the rationale for bond switching and describe bond-switching strategies.



Asked by Ewing, Last updated: Feb 24, 2020

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John Smith

John Smith

Answered Sep 08, 2016

investors use bond-switching strategies by selling and buying bonds to capture certain advantages, such as yield, term, risk reduction and diversification, among others. a net yield improvement is the enhancement of after-tax yield without adversely affecting quality. a term-extension strategy is designed to reduce portfolio risk by extending the term of bond holdings as the yield curve changes. cash take-outs are possible when the proceeds from the sale of a bond are greater than the cost of the bond bought with the proceeds.
 

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