Swap spread

Swap spreads are the difference between the swap rate (a fixed interest rate) and a corresponding government bond yield with the same maturity (Treasury securities in the case of the United States).[1]

For example, if the current market rate for a five-year swap is 1.35 percent and the current yield on the five-year Treasury note is 1.33 percent, the five-year swap spread would be 0.02 percentage points, or 2 basis points.[2][3]

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
  1. "The term structure and interest rate dynamics Chapter 10". CFA Institute.
  2. "an empirical analysis of interest rate swap spreads" (PDF).
  3. "Examining Swap Spreads and the Implications for Funding the Government". www.treasury.gov. Retrieved 2017-03-27.


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