Municipal Bond Arbitrage

Municipal bond arbitrage is a leveraged portfolio of tax-exempt municipal bonds hedged against a short strategy of equivalent taxable corporate bonds. The corporate equivalent taxable corporate bonds are typically interest rate swaps related to Libor. Municipal bond arbitrage is a value strategy that attempts to profit from the inefficiency that is related to federal tax exemption of municipal bonds. An arbitrage opportunity arises when the prices of the same asset in two markets differ by more than the trading cost of buying in the lower-priced market and simultaneously selling in the higher-priced market.

The arbitrage presents itself through the purchase of relatively inexpensive longer-term municipal bonds, coupled with interest rate swaps that are treated as insurance and are cheaper than the yield on long term municipal bonds. Over a long period of time, two similar instruments – the municipal bonds and interest rate swaps – will correlate with each other. However, when they do not correlate significant losses can occur for investors. Brokers must disclose these risks and make sure investors understand those risks before recommending a municipal arbitrage strategy.

The attorneys at Gana LLP handled several cases involving the sale of municipal arbitrage funds. If you were sold a municipal arbitrage fund and believe your financial advisor did not adequately explain the risks, contact us.

Client Reviews
★★★★★
"I will never forget how much you helped me by winning my case! I never thought I would see any money from my investment. I admire the way you fight for everyday people against big companies. Thank you so much!"
★★★★★
"Adam is an outstanding lawyer. I have worked on several cases with Adam and look forward to working with him again in the future." Rob D. - Co-Counsel.
★★★★★
"If you want an attorney that is easy to talk to and genuinely cares about your legal situation, contact Adam Gana. He helped me settle a difficult contract dispute. When you work with Adam, he makes you feel as if you are his top priority. He will call you regularly to stay on top of the situation and submits all necessary legal documentation in a timely manner. His writing is excellent, his demeanor professional, and his work exceptional." Nancy N.
★★★★★
Adam helped me recover money from my broker when I thought all was lost. My house was about to be foreclosed, and I lost everything. Adam came in and saved my life. Jean C.
★★★★★
Gana LLP has the best attorneys period. They work hard, they work fast and I would recommend them to anyone. They are like family. Liz N.