Swap spread
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In finance, swap spread is a popular way to indicate the credit spreads in a market. It is defined as the spread paid by the fixed-rate payer of an interest rate swap over the rate of the on the run treasury with the same maturity as the swap.[1] For example, if the fixed-rate of a five-year fixed-for-float LIBOR swap is 7.26% and the five-year Treasury is yielding at 6.43%, the swap spread is 7.26% − 6.43% = 83 bps.
Often, fixed income prices will be quoted in "SWAPS +", wherein the swap rate is added to a given number of basis points. The swap rate there is simply the yield on an equal-maturity Treasury plus the swap spread.
Swap spread became a popular indication of credit spread in Europe during the 1990s.
References
- ^ "www.semanticscholar.org" (PDF).
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