A two-legged transaction that involves the sale of one bond and the purchase of another with different term to take advantage of potential changes in interest rates. For example, an investor expecting lower interest rates might exchange long-term bonds selling at a premium for long-term discount bonds. Characteristically, the volatility of premium bonds is less than that of discount bonds, and therefore the expected fall in interest rates should result in a higher capital gain with the discount bonds. On the contrary, if an investor expects rates to move up, he might sell discount bonds and buy premium bonds or exchange longer-term bonds for short-term bonds.