Bond Swapping

As the name suggests, bond swapping involves selling one bond and simultaneously purchasing another similar bond with the proceeds from the sale. Why would you engage in this practice? You may wish to take advantage of current market conditions (e.g., a change in interest rates), or perhaps a change in your own personal financial situation has now made a bond with a different tax status appealing.

Bond swapping can also cause you to receive certain tax benefits. In fact, tax swapping is the most common of bond swaps. Generally, anyone who owns bonds that are selling below their amortized purchase price and who has capital gains or other income that could be partially, or fully, offset by a tax loss can benefit from tax swapping. Tax law plays an important role in bond swaps so it is advised that investors consult a tax advisor for the most up-to-date advice.