Swap Spreads

Swap Spread = Swap rate (fixed-rate of an interest rate swap) - On-the-run Treasury yield(*)

(*) Treasury with the same maturity as the swap.

• An indicator for the general level of credit risk in the market.
• The fixed rate on any particular swap is the same for any interested party regardless of their credit quality.
• Therefore, the swap spread is a general measure of credit quality in the global economy.
• For example, if the fixed-rate of a 5-year swap is 7.26% and the 5-year Treasury is yielding at 6.43%, the swap spread is 7.26% - 6.43% = 83 bps.