Page "Arbitrage" Paragraph 41

Generally, managers seek relative value opportunities by being both long and short municipal bonds with a duration-neutral book.

The relative value trades may be between different issuers, different bonds issued by the same entity, or capital structure trades referencing the same asset ( in the case of revenue bonds ).

Managers aim to capture the inefficiencies arising from the heavy participation of non-economic investors ( i. e., high income " buy and hold " investors seeking tax-exempt income ) as well as the " crossover buying " arising from corporations ' or individuals ' changing income tax situations ( i. e., insurers switching their munis for corporates after a large loss as they can capture a higher after-tax yield by offsetting the taxable corporate income with underwriting losses ).

There are additional inefficiencies arising from the highly fragmented nature of the municipal bond market which has two million outstanding issues and 50, 000 issuers in contrast to the Treasury market which has 400 issues and a single issuer.