Arbitrage Bond
An arbitrage bond is a state or local bond whose tax-exempt status is threatened by prohibited investment arbitrage on bond proceeds.
Cash-and-carry, triangular, and municipal bond arbitrage terms used in futures, FX, and tax-exempt bond analysis.
Cash-carry, triangular, and bond arbitrage terms describe pricing relationships that can break across spot, futures, currency, and municipal-bond markets. They are useful only when the price gap is large enough to survive bid-ask spreads, funding costs, margin, settlement timing, borrow constraints, taxes, and execution risk.
Use Cash-and-Carry Arbitrage when the question is whether a spot asset and futures or forward contract are mispriced after carry costs. Use Triangular Arbitrage when three currency-pair quotes imply an inconsistent cross-rate. Use Arbitrage Bond when the issue is municipal tax-exempt bond proceeds and arbitrage compliance rather than a normal trading setup.
| Strategy label | Main market | Evidence to check |
|---|---|---|
| Cash-and-carry arbitrage | Spot and futures or forwards. | Spot price, futures price, financing, storage, income, delivery terms, margin, and transaction costs. |
| Triangular arbitrage | Foreign exchange. | Executable bid/ask quotes, order size, latency, settlement, counterparty, and fill quality. |
| Arbitrage bond | Municipal tax-exempt bonds. | Tax certificate, proceeds investments, rebate calculations, escrow records, and bond counsel analysis. |
These pages are educational. They do not recommend trades, guarantee execution, or replace legal, tax, or risk review.
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An arbitrage bond is a state or local bond whose tax-exempt status is threatened by prohibited investment arbitrage on bond proceeds.
Cash-and-carry arbitrage buys a spot asset and sells a futures or forward contract when the futures price exceeds full carry cost.
Triangular arbitrage uses three currency trades when quoted exchange rates imply an inconsistent cross-rate after spreads and costs.