In general, a reinvestment position constitutes a new investment position that is taken re-using/ re-deploying the funds freed up from a maturing investment (principal). More specifically, a reinvestment position comes into play when an entity’s asset holding period is shorter than its corresponding liability period. For example, an entity holds an asset maturing in 4 months, while its corresponding liabilities have a term of 6 months. In such a situation, an entity would expect to have funds freed up later because its assets or a portion of these assets mature earlier than its liabilities. For the time gap, it can tap to financial markets (e.g., the futures market) to lock in the current rate of return on investment (ROI) such as taking a long position (purchasing) futures contracts on T-notes.
The opposite is true in the case of a refinancing position.
