Swap Spread

CFA Level II
#1

In the secret sauce as well as in the schwesher books they describe a swap spread as “The spread between the swap rate and the comparable maturity t-notes. The swap spread will respond to the same factors as other “quality” spreads”. What are some examples of other “quality” spreads? thanks

#2

AAA Corps over 10Yr Treasuries BBB Corps over 10Yr Treasuries 10Yr Treasuries over 2 Yr Treasuries etc…

#3

Soo we’re talking default risk, liquidity risk,etc?

#4

by swap rate do they mean the fixed rate we calculate or the list of Libor etc they give us?

#5

justinkc Wrote: ------------------------------------------------------- > Soo we’re talking default risk, liquidity > risk,etc? Yes. Look at Greece. CDS protection for sovereign greek debt has risen something like 1000bps over the last month due to the risk factors you mentioned. I’m sure you’ve read this a hundred times but as sh!t starts to hit the fan, spreads begin to widen very quickly. That’s when CDS premiums go through the roof.

#6

Thanks that example clears it up. A lot easier to think about this spread with CDS then interest rates swaps.