An arbitrage that takes advantage of mis-pricing and distortions in value between two securities. Arbitrage profit opportunities often exist because different participants have different objectives, constraints, market outlook and skill level. Yield spreads between fixed income securities often provide arbitrage opportunities as market factors influence these relationships and produce value distortions. Various fixed income instruments such as Treasury bonds, corporate bonds, mortgage backed securities, derivatives etc. are utilized in an arbitrage situation.

A hedge fund strategy that attempts to profit from arbitrage opportunities in interest rate securities.

Fixed-income arbitrage is an investment strategy generally associated with hedge funds, which consists of the discovery and exploitation of inefficiencies in the pricing of bonds, i.e. instruments from either public or private issuers yielding a contractually fixed stream of income.