Introduction of several arbitrage methods spread arbitrage operation is of great benefit to improve the income of fixed income portfolio. Several common arbitrage strategies include: 1, using 7-day repurchase financing and buying central bank bills or short-term financing bills at the same time; 2. Use 7-day repurchase financing and purchase money market funds at the same time; 3. Credit spread arbitrage between central bank bills and short-term financing bills. Limited by market liquidity, there are some obstacles to the realization of current credit spread arbitrage. However, with the continuous development and improvement of the bond market, the transaction cost of arbitrage operation will inevitably gradually decrease and the feasibility will gradually increase. Profit and loss analysis of arbitrage strategy Among several arbitrage methods, the method of 7-day repurchase financing and money market fund purchase is relatively stable with relatively little risk; The arbitrage method of using 7-day repurchase financing and buying central bank bills or short-term financing bills at the same time is basically the same in operation, but the liquidity of central bank bills is better than that of short-term financing bills, the credit risk is less than that of short-term financing bills, and the income is slightly lower. Credit spread arbitrage has higher returns among several arbitrage methods. In addition, the scenario analysis also shows that the profit of this arbitrage operation rises when the yield curve moves up, assuming that the spread is constant. Brief introduction of several arbitrage methods The focus of this paper is that there are some arbitrage opportunities in the current market environment. In the case of low market returns, proper use of arbitrage opportunities will help to improve portfolio returns. Although some arbitrage strategies discussed in this paper are limited by market liquidity and there are some obstacles in actual operation, with the continuous development and improvement of the bond market, the transaction cost of arbitrage operation will gradually decrease and the feasibility will gradually increase. Arbitrage operation of using pledged repo financing to buy central bank bills at the same time From the current market interest rate, there is a relatively stable spread between the 7-day repo rate and central bank bills; 1Y central bank bill and 7-day repurchase spread is about 50 ~ 55bp；; The spread between the 3M central bank bill and the 7-day repurchase is about 35~40bp. T trading day can buy back the integrated funds for 7 days, and use the integrated funds to buy central bank bills; On the T+7 trading day, the central bank bill was sold to obtain funds, which were used to pay the principal and interest of the repurchase for 7 days. This method does not occupy funds, but it will occupy cash bonds, that is, when repurchase financing is carried out on T trading day, arbitrage operators must hold cash bonds that can be used as mortgage bonds. The arbitrage operation of using pledged repo financing to buy short-term financing bills at the same time is the same as above, except that short-term financing bills are bought on T trading day instead of central bank bills. Because the yield of short-term financing bills is higher than that of central bank bills with the same term, this method can obtain higher returns; However, it should be noted that the liquidity of short-term financing bills is slightly worse than that of central bank bills, and the risk of arbitrage operation is correspondingly higher. Investors should choose short-term financing with high credit rating and good liquidity when carrying out arbitrage operations. In addition, in 2006, the issue rate of short-term financing bonds has been greatly improved, and the secondary market yield of corresponding bonds has also been greatly improved, which is very different from the current repurchase rate. It is more profitable to choose such bonds for arbitrage. The arbitrage operation of using pledged repo financing and buying money market funds at the same time, because the annualized rate of return of money market funds is relatively stable (the 7-day annualized rate of return of most money market funds is between 1.9%-2.0%), the spread between them and the 7-day repo rate is stable, and there is no subscription and redemption fee; Arbitrage income is relatively stable and the risk is relatively small. However, it should be pointed out that when redeeming money market funds, there may be a gap of 2-3 working days between the arrival date of funds and the redemption application date; Moreover, the fund manager has the right to refuse or suspend the subscription application of fund investors. Figure1:Flowchart of arbitrage strategy between 7-day repo and central bank bills (short-term financing bills/subscription money market funds) Source: Credit spread arbitrage opportunities exist between central bank bills and short-term financing bills of Guo Xin Securities Economic Research Institute, but there are credit arbitrage opportunities between bonds with different issuers' credit ratings, such as short-term financing bills and central bank bills with similar maturities. Taking short-term financing bills and central bank bills with a residual term of about 1 year as an example, the following arbitrage operations can be constructed with a spread of about 60bp: on the t trading day, the 7-day buyout reverse repurchase is merged into the central bank bill, and the merged central bank bill is sold immediately, and then the cash obtained from selling the central bank bill is used to buy short-term financing bills, and the merged funds are used to buy back short-term financing bills to cover the short-term financing cost of buyout reverse repurchase; If the above transaction is completed within 1 day, it will basically not occupy funds and cash coupons. On the T+7 trading day, the buyout reverse repurchase expires, the central bank bill is bought, the buyout reverse repurchase transaction is completed, and the cost of buying the central bank bill is covered by cash; When the repurchase expires, pay the principal and interest of the counterparty, obtain short-term financing bonds, sell them immediately, and use the obtained cash to pay the principal and interest needed to complete the repurchase transaction. The flow chart of arbitrage operation is as follows. Figure 2: Flowchart of arbitrage operation of central bank bills and short-term financing bills on T trading day Figure 3: Flowchart of arbitrage operation of central bank bills and short-term financing bills on T+7 trading day.