Reverse a Swap

The process that involves restoring a bond portfolio to its former position before the original swap. This may usually take place after a swap of one bond for another in an attempt to avail from a yield spread or a tax loss. In other words, the bonds in question are “reswapped” to capitalize on a potential differential between the yields or tax losses on the two bonds. The reversal may indicate that the yield spread has vanished or that the investor, content with a short-term profit, wishes to hold the original bond for potential benefits that may be attained in the future.