Swap spreads are the difference between the

swap rate Swap or SWAP may refer to: Finance * Swap (finance), a derivative in which two parties agree to exchange one stream of cash flows against another * Barter Science and technology * Swap (computer programming), exchanging two variables in t ...

(a fixed interest rate) and a corresponding government

bond yield In finance, a bond is a type of security under which the issuer (debtor) owes the holder (creditor) a debt, and is obliged – depending on the terms – to repay the principal (i.e. amount borrowed) of the bond at the maturity date as well as ...

with the same maturity (

Treasury securities United States Treasury securities, also called Treasuries or Treasurys, are government debt instruments issued by the United States Department of the Treasury to finance government spending as an alternative to taxation. Since 2012, U.S. gov ...

in the case of the United States). For example, if the current market rate for a five-year swap is 1.35 percent and the current yield on the five-year Treasury note is 1.33 percent, the five-year swap spread would be 0.02 percentage points, or 2

basis points A basis point (often abbreviated as bp, often pronounced as "bip" or "beep") is one hundredth of 1 percentage point. The related term ''#Permyriad, permyriad'' means one hundredth of 1 percent. Changes of interest rates are often stated in basis ...

. Often,

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the prin ...

prices will be quoted in "SWAPS +", wherein the swap rate is added to a given number of basis points. The swap rate there is simply the yield on an equal-maturity Treasury plus the swap spread. Swap spread became a popular indication of

credit spread Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt ...

in Europe during the 1990s.

References

Financial markets Swaps (finance) Credit risk {{finance-stub