Fixed Income Total Return Swaps

Abstract

The total return on a bond, bond portfolio, or bond index is taken into account interest income and any capital gain or loss realized. In the fixed income market, derivative instruments that allow an investor to obtain exposure to the total return of a bond, bond portfolio, or bond index without the actual purchase of the underlying is available. This derivative instrument is a total return swap. Similarly, a total return swap can be used to short the underlying without the need to borrow it. Keywords: total return swap; total return bond index swap; total return index swap; swap buyer; swap seller; interest rate swap; basis swap; funding leg; synthetic repo