Arbitrage Bond

An arbitrage bond is a type of municipal bond which has a lower interest rate than other bonds issued by the same government.

Arbitrage bonds are typically issued by municipalities which invest the capital obtained from their sale in government bonds which yield a higher interest rate. The difference between the lower interest rate paid for the capital and the higher interest earned on the capital makes up the issuer’s profit.

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.