Investing in Hedge Funds, Revised and Updated Edition

CHAPTER 4

Fixed-Income Arbitage

FIXED-INCOME STRATEGIES are alternative approaches to traditional, long-only fixed-income investments and include arbitrage and opportunistic strategies. ARBITRAGE STRATEGIES involve investing in one or more fixed-income securities and hedging against underlying market risk by simultaneously investing in another fixed-income security. Managers seek to capture profit opportunities presented by what are usually small pricing anomalies, while maintaining minimum exposure to interest rates and other systemic market risks. In most cases, managers take offsetting long and short positions in similar fixed-income securities that are mathematically or historically interrelated when that relationship is temporarily distorted ...