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What are swap spreads?

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21st Nov 2009 by cocacolabuffet

A swap spread is the difference between a swap rate and the yield of a government security of the same maturity. For example, the swap rate of a ˇ°plain vanillaˇ± interest rate swap refers to the fixed interest rate received in exchange for floating interest rate. The difference between the fixed interest rate and the Treasury bond of the same maturity is the swap spread. Because government bonds (Treasury bonds in the US) are considered the safest financial instrument with no credit risk, a swap spread is often used as a gauge of the creditworthiness of counterparties who provide the swap.

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11th Nov 2009 In Investing 1 Answers | 574 Views
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