What is the goal of fixed-income arbitrage?

The goal of fixed-income arbitrage is to identify mispriced securities based on interest rate expectations. This strategy seeks to exploit inefficiencies in the pricing of fixed-income securities, which may arise due to a variety of factors including market supply and demand dynamics, changing interest rates, or variations in credit risk perceptions.

Traders engaging in fixed-income arbitrage typically analyze the relationships and price discrepancies between different instruments, such as government bonds, corporate bonds, or interest rate derivatives. For instance, if two bonds have similar characteristics but are priced differently, an arbitrageur would buy the undervalued bond and potentially short the overvalued bond, expecting the price difference to converge over time. This approach relies heavily on the correct identification of value disparities while accounting for interest rate changes that can affect the valuation of these securities.

In contrast, other options focus on different aspects of investing or trading strategies. Profiting from distressed companies pertains more to event-driven strategies rather than the systematic pricing anomalies targeted in fixed-income arbitrage. Trading equities and derivatives simultaneously relates to a separate category of trading strategies known as equity arbitrage or derivative arbitrage, which can differ significantly from the fixed-income focus. Lastly, long-term investment trends typically involve fundamental analysis and strategic asset allocation, whereas