Basic question about swap/swap spreadsEquivalency of FX forwards and FX basis swaps for risk-management purposeshow to derive yield curve from interest rate swap?Inflation-Linked Bonds & Asset Swap SpreadsACT/360 day convention in swap pricingBootstrapping bond spreads as in the standard CDS modelIs it possible to hedge Spread Risk on a Forward Swap?Basis risk, spreads and discountingValuing an interest rate swap using a par swaps curve?
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Basic question about swap/swap spreads
Equivalency of FX forwards and FX basis swaps for risk-management purposeshow to derive yield curve from interest rate swap?Inflation-Linked Bonds & Asset Swap SpreadsACT/360 day convention in swap pricingBootstrapping bond spreads as in the standard CDS modelIs it possible to hedge Spread Risk on a Forward Swap?Basis risk, spreads and discountingValuing an interest rate swap using a par swaps curve?
$begingroup$
When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity.
So if the fixed leg of a 10y swap is 8% and the Treasury bond has a rate of 5%, the spread is 3%. What confuses me about this is that I thought the fixed rate of the swap depends on the floating leg: If a company has a variable interest rate of Libor + 2%, they will probably get a different fixed rate in a swap compared to a company with Libor + 1%. And that would lead to a different swap spread.
Could someone point out where my mistake is?
swaps spread
asked 9 hours ago
NoNameNo123NoNameNo123
153
$endgroup$
add a comment |
$begingroup$
When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity.
So if the fixed leg of a 10y swap is 8% and the Treasury bond has a rate of 5%, the spread is 3%. What confuses me about this is that I thought the fixed rate of the swap depends on the floating leg: If a company has a variable interest rate of Libor + 2%, they will probably get a different fixed rate in a swap compared to a company with Libor + 1%. And that would lead to a different swap spread.
Could someone point out where my mistake is?
swaps spread
asked 9 hours ago
NoNameNo123NoNameNo123
153
$endgroup$
add a comment |
$begingroup$
When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity.
So if the fixed leg of a 10y swap is 8% and the Treasury bond has a rate of 5%, the spread is 3%. What confuses me about this is that I thought the fixed rate of the swap depends on the floating leg: If a company has a variable interest rate of Libor + 2%, they will probably get a different fixed rate in a swap compared to a company with Libor + 1%. And that would lead to a different swap spread.
Could someone point out where my mistake is?
swaps spread
asked 9 hours ago
NoNameNo123NoNameNo123
153
$endgroup$
When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity.
So if the fixed leg of a 10y swap is 8% and the Treasury bond has a rate of 5%, the spread is 3%. What confuses me about this is that I thought the fixed rate of the swap depends on the floating leg: If a company has a variable interest rate of Libor + 2%, they will probably get a different fixed rate in a swap compared to a company with Libor + 1%. And that would lead to a different swap spread.
Could someone point out where my mistake is?
swaps spread
swaps spread
asked 9 hours ago
NoNameNo123NoNameNo123
153
asked 9 hours ago
NoNameNo123NoNameNo123
153
asked 9 hours ago
NoNameNo123NoNameNo123
153
asked 9 hours ago
NoNameNo123NoNameNo123
153
asked 9 hours ago
NoNameNo123NoNameNo123
153
153
add a comment |
add a comment |
1 Answer
1
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$begingroup$
Yes that’s pretty simple : for the purposes of defining the swap spread, we assume that the libor leg of the swap is at libor flat.
answered 3 hours ago
dm63dm63
7,9521933
$endgroup$
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
add a comment |
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1 Answer
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1 Answer
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$begingroup$
Yes that’s pretty simple : for the purposes of defining the swap spread, we assume that the libor leg of the swap is at libor flat.
answered 3 hours ago
dm63dm63
7,9521933
$endgroup$
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
add a comment |
$begingroup$
Yes that’s pretty simple : for the purposes of defining the swap spread, we assume that the libor leg of the swap is at libor flat.
answered 3 hours ago
dm63dm63
7,9521933
$endgroup$
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
add a comment |
$begingroup$
Yes that’s pretty simple : for the purposes of defining the swap spread, we assume that the libor leg of the swap is at libor flat.
answered 3 hours ago
dm63dm63
7,9521933
$endgroup$
Yes that’s pretty simple : for the purposes of defining the swap spread, we assume that the libor leg of the swap is at libor flat.
answered 3 hours ago
dm63dm63
7,9521933
answered 3 hours ago
dm63dm63
7,9521933
answered 3 hours ago
dm63dm63
7,9521933
answered 3 hours ago
dm63dm63
7,9521933
7,9521933
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
add a comment |
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
$begingroup$
Sorry, not sure I understand what "being at LIBOR flat" means for a swap. Do you mean that it is assumed that the floating leg rate is just the LIBOR, hence the swap spread is just: IRS fixed rate - Treasury Bond rate (i.e. 3% in the example above)?
$endgroup$
– JejeBelfort
3 hours ago
1
1
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
Yes , correct. Just fyi , swap spreads have never been anywhere near 3% in the US. Right now the 10yr swap spread is close to zero.
$endgroup$
– dm63
3 hours ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
$begingroup$
(1) "Libor flat" is another way of saying Libor+0%, (2) You are probably reading a book about swaps from the 1980's if it uses examples with 8% and 5%
$endgroup$
– Alex C
1 hour ago
add a comment |
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