CHAPTER 10
Fixed-Income Arbitrage
The enormous variety of fixed-income instruments available in numerous currencies and the many relationships among them, ranging from systematic to mathematically pleasing to economic to temporary and perhaps spurious, offer myriad opportunities to arbitrageurs. While the highly intermittent liquidity of many of these instruments can present a major impediment to high-frequency trading of them, illiquidity itself is also a rich source of mispricing, which is the bread and butter of all arbitrage activities. And many arbitrageurs resort to the much more liquid futures and swap markets to craft most if not all of their trades, so in many cases the liquidity of the underlying presents less severe obstacles to their ...

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