Definition of Swap curve:
A swap curve identifies the relationship between swap rates at varying maturities. A swap curve is effectively the name given to the swap's equivalent of a yield curve.
A graphic illustration that shows the possible return for a swap using different maturity dates.
The yield curve and swap curve are of similar shape. However, there can be differences between the two. This difference, which can be positive or negative, is referred to as the swap spread. For example, if the rate on a 10-year swap is 4% and the rate on a 10-year Treasury is 3.5%, the swap spread will be 50 basis points. The swap spread on a given contract indicates the associated level of risk, which increases as the spread widens.
How to use Swap curve in a sentence?
- Differences between the swap curve and the yield curve (e.g. LIBOR) define the swap spread for a given maturity.
- A swap curve describes the implied yield curve based on the floating rates associated with an interest rate swap.
- Swap spreads are used to understand the time value of money and how interest rates in the market change with time to maturity.
Meaning of Swap curve & Swap curve Definition