// definition
Swap spread
Swap rate relative to a government bond yield
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Short definition
The fixed swap rate minus the yield on a government bond in the same currency and of comparable maturity. One trade combines a repo-financed bond purchase with paying the swap’s fixed rate. Its result depends on the spread, funding and margins; it is distinct from the cash-futures basis trade.
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Knowledge map
Intuition
A financed bond and a fixed-rate payer swap can hedge part of the interest-rate risk while retaining exposure to their relative prices.
Formula
swap spread = fixed swap rate − comparable government bond yieldRelated analyses
Related guides
Primary sources
- BIS, relative-value trades in Treasuries and interest-rate swapsSpread definition and the combination of repo, bonds and fixed-rate payer swaps.