Swaps framework allows investors as well as issuers to more easily compare securities across fixed- and floating-rate markets.
Nominal spread framework does not work very well for investors and issuers in comparing the relative attractiveness between the fixed- and floating-rate markets.
Why swap spread is better than nominal spread in comparing fixed- and floating-rate markets.?
prior post with S2000’s permission:
The nominal spread is the difference in YTM between a given bond (say, a corporate bond) and a government bond of the same maturity (e.g., a US Treasury). It generally compares a fixed rate bond (the corporate) to a fixed-rate bond (the Treasury); there is no floating rate (e.g., LIBOR) involved.
The swap spread compares the fixed rate on a (plain vanilla, fixed-for-floating) swap with the Treasury bond of the same maturity. It explicitly includes a floating rate comparison: the floating rate in the swap (usually LIBOR).
A framework that explicitly includes both a fixed rate and a floating rate will be better at somparing fixed-rate and floating-rate bonds than a framework that involves only fixed rates.