Negative Arbitrage

Negative Arbitrage
The opportunity lost when municipal bond issuers assume proceeds from debt offerings and then invest that money for a period of time (ideally in a safe investment vehicle) until the money is used to fund a project, or to repay investors. The lost opportunity occurs when the money is reinvested and the debt issuer earns a rate or return that is lower than what must actually be paid back to the debt holders.

As an example, XYZ issuer distributes $50 million in municipal bonds paying 6%. The issuer takes in this money, and then invests it at 4.2% for a period of one year, because the prevailing market will not pay a higher rate. The issuer has lost the equivalent of 1.8% interest that it could have earned or retained.


Investment dictionary. . 2012.

Игры ⚽ Нужно решить контрольную?

Look at other dictionaries:

  • Negative Population Growth — is a membership organization in the United States, founded in 1972. NPG works on overpopulation issues and advocates a gradual reduction in U.S. and world population. NPG believes the optimal population for the United States is 150 to 200 million …   Wikipedia

  • Arbitrage — For the upcoming film, see Arbitrage (film). Not to be confused with Arbitration. In economics and finance, arbitrage (IPA: /ˈɑrbɨtrɑːʒ/) is the practice of taking advantage of a price difference between two or more markets: striking a… …   Wikipedia

  • Uncovered Interest Arbitrage — A form of arbitrage that involves switching from a domestic currency that carries a lower interest rate to a foreign currency that offers a higher rate of interest on deposits. There is a foreign exchange risk implicit in this transaction since… …   Investment dictionary

  • Vente à découvert — La vente à découvert consiste à vendre à terme un titre que l on ne détient pas le jour où cette vente est négociée mais qu on se met en mesure de détenir le jour où sa livraison est prévue. Si la valeur du titre baisse après la vente à découvert …   Wikipédia en Français

  • Short (finance) — Schematic representation of short selling in two steps. The short seller borrows shares and immediately sells them. He then waits, hoping for the stock price to decrease, when the seller can profit by purchasing the shares to return to the lender …   Wikipedia

  • Inflation — Pour les articles homonymes, voir Inflation (homonymie). Estimation des taux d inflation dans le monde en 2010 L inflation est une baisse durable de la valeur de la …   Wikipédia en Français

  • Modern portfolio theory — Portfolio analysis redirects here. For theorems about the mean variance efficient frontier, see Mutual fund separation theorem. For non mean variance portfolio analysis, see Marginal conditional stochastic dominance. Modern portfolio theory (MPT) …   Wikipedia

  • Day trading — This article is about the practice. For the occupation, see Day trader. Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are usually closed before the market close… …   Wikipedia

  • Derivative (finance) — Financial markets Public market Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal bond …   Wikipedia

  • Citadel LLC — (formerly known as Citadel Investment Group, LLC) Type Private, Limited Liability Company Industry Hedge fund Management Founded 1990 He …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”