swap spreads

Swap spreads refer to the difference between the fixed interest rate of a interest rate swap and the yield on a comparable-duration government bond. Essentially, it's a measure of how much extra investors are willing to pay (or get paid) to exchange fixed-rate payments for floating-rate payments, compared to the risk-free government securities. Swap spreads reflect perceptions of credit risk, liquidity, and market conditions; when spreads widen, it often indicates increased perceived risk or uncertainty, while narrowing spreads suggest confidence and stability in the financial markets.