FX & Money Markets
Tradition USD Repo Service
1 Jun 2023
Credit & Fixed Income
Japanese Government Bonds now available via...
18 May 2023
Product launch: Derivium Tradition
25 Apr 2023
Interest Rate Derivatives
Best in class USD Swaps data...
By Ian Sams
19 Apr 2023
25 new USD SOFR Butterfly Spreads...
13 Feb 2023
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Whether you are a trader, risk manager or portfolio manager, asset swaps can be a valuable tool for managing interest rate risk and maximizing returns.
The new MTS Tradition European Asset Swaps Service uniquely consolidates MTS’ French, German, Italian and Spanish live and executable Government bond data with real time executable EUR EURIBOR swaps data from Tradition’s Trad-X platform to produce the related Asset Swaps.
As a result of this initiative, we publish accurate Yield/Yield and Par/Par Asset Swaps built from the two fully executable dealer-to-dealer (D2D) regulated real-time order books, via our own data feeds as well as through select vendors.
Hedging interest rate risk: An investor can use an asset swap to hedge against changes in interest rates by swapping the cash flows from a fixed-rate bond for the cash flows from a floating-rate bond.
Changing credit risk exposure: An investor can use an asset swap to change the credit risk of their portfolio by swapping the cash flows from a bond one issuer for the cash flows on a bond or a different issuer.
Synthetic securitization: An issuer can use an asset swap to securitize an asset without transferring ownership of the underlying asset.
Enhancing returns: An investor can use an asset swap to enhance returns by swapping the cash flows from an underperforming asset for the cash flows from a higher-performing asset.
Financing structures: An issuer can use an asset swap to raise capital by swapping cash flows from an asset for cash.
An asset swap is a financial transaction in which an investor exchanges the cash flows from an existing security for a different set of cash flows, usually reflecting a different credit risk profile. Counterparties to the asset swap may also pay or receive a spread to compensate for the difference in credit risk. The existing security is usually a fixed-rate bond, and the replacement cash flows may come from a floating-rate bond or a bond with a different credit rating or an interest rate swap.
Asset swaps are primarily used to change the credit or market risk profile of a portfolio, for example, if an investor wants to reduce their exposure to credit risk, they can enter into an asset swap to exchange a bond with a high credit risk for a bond with a lower credit risk.
Institutional investors such as pension funds, insurance companies and banks use asset swaps to manage their interest rate and credit risk exposure.
Asset swaps are calculated by determining the spread between the cash flows generated by a reference asset, such as a bond, and the cash flows generated by an interest rate swap, such as a fixed-floating OIS or IRS. The reference asset’s cash flows are usually reflected in the fixed leg of the swap, sometimes matching the payment dates and/or coupon level, but those may sometimes be mismatched.
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