Swap Spread

Swap Spread = Fixed rate - Reference rate

• The swap spread is derived from the term structure of interest rates used to price the cash flows of the swap. These rates do not reflect the credit risk of the counterparties. They reflect the credit risk in the overall global economy (general level of credit risk in the marketplace) because they reflect the credit spread of the reference rate used to calculate the fixed-rate and expected floating-rate payments.
• The fixed rate on any particular swap is the same for any interested party regardless of their credit quality.