Definition
Swap spread is the difference between the fixed rate on an interest rate swap and the Treasury yield of the same maturity. It reflects credit risk in the banking system and supply/demand dynamics. Normally positive, negative swap spreads indicate unusual market stress or Treasury supply imbalances.
Formula
Swap Spread = Swap Rate - Treasury Yield
Example
The 10-year swap rate is 4.25% and 10-year Treasury yields 4.00%. The swap spread is 25 basis points.
FAQ
What is Swap Spread?
The difference between swap rates and Treasury yields of same maturity.
How do you calculate Swap Spread?
A common formula for Swap Spread is: Swap Spread = Swap Rate - Treasury Yield
Why is Swap Spread important?
Swap Spread helps investors evaluate fixed income and make more informed decisions.