Market Guides > Swap spreads

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Published: 21st September 2009 by William Webster

The swap spread is the difference in yield between the interest rate swap (IRS) market and the government bond market. Normally you would expect the swap rate to be higher than the yield on similarly dated government bonds but this relationship can and does change. When it does it not only affects dealers who speculate but it can affect those intending to hedge, so it may affect you. Let's see how.

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Document Summary

What is the swap spread? Why swap spreads affect hedging. Risk quantification, hedging gilts with swaps. 9 factors that influence swap spreads, QE, fiscal needs, credit spreads, corporate hedging, stock markets, new issues, asset swaps, repo, structured products.

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