How to Calculate Asset Swap Spread

by Sam Grover ; Updated July 27, 2017
Asset swaps are a good way to manage cashflow.

Asset swaps are a method of hedging and cash flow management in which one entity exchanges payments with another. Instead of receiving payments from an asset (like a debt or a bond), the creditor receives payments from a third party, who gets access to cash flow it would not have otherwise had in exchange for taking on the risk of the bond.

The asset swap spread is a figure that shows how risky the bond is, It is a basic calculation of the asset's interest rate in relation to the London Interbank Offering Rate (LIBOR).

Step 1

Find the asset's yield. If it is a bond, use the yield to maturity, not the market value, as the bond is not going to be sold during the asset swap. This should be available from the asset's seller.

Step 2

Find the LIBOR curve. This is the one-year average of the LIBOR, which is a short-term rate. You can find this on the FXtrade website. See the resources section.

Step 3

Subtract the asset's yield from the LIBOR curve to get the asset swap spread. The lower the resulting number, the lower the risk; the higher the number, the higher the risk.

About the Author

Sam Grover began writing in 2005, also having worked as a behavior therapist and teacher. His work has appeared in New Zealand publications "Critic" and "Logic," where he covered political and educational issues. Grover graduated from the University of Otago with a Bachelor of Arts in history.

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