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What is the mid-swap rate ?

1 year mid-swap rate at 1 year

This rate is often used as a reference to calculate the premium paid by bond buyers versus market rates. There are a number of ways to value a bond, when it is issued or on the secondary market: its price (in percentage), its yield (different from the coupon) and its spread against a reference rate.

 

This rate differential can be calculated against a benchmark, usually German government bonds with similar maturities for euro issues, or against interest rate swaps. The bond is therefore said to be priced based on a spread of x basis points (bps) above the mid-swap. This means that its yield is x basis points above interest rates offered by the market.

 

Interest rate swaps are derivatives. This is one of the most important markets with regard to interest rates in the medium and long term, with interest rates on government bonds and those on future bonds. This explains why swap rates are used as benchmarks to determine the level of premiums paid by investors.

 

A swap rate is the interest ratio on a loan or fixed rate deposit versus a variable rate, in the context of a swap of financial flows between two stakeholders, banks or financial institutions, for the same amount and duration. A swap rate is an exchange operation between a flow of fixed interest rates against a flow of variable-interest rates, and vice-versa.

 

This exchange allows banks and financial institutions to manage interest rate risks on the long term.

 

The mid swap rate therefore represents an average of all swaps, with identical maturities.

 

 

In summary :

 

"A" loans an ​​x amount at a fixed rate for a period ahead, to "B". In exchange, "B" lends x amount for a y period, with a floating rate, to "A".

 

The ratio between the interests of these exchanges is called the swap.

 

Therefore a mid-swap rate at "y" years is the average among all the swaps made for the same y period.

 

 

Find here the main mid-swap rates:

1 year mid-swap rate at 1 year

2 years mid-swap rate at 2 years 

3 years mid-swap rate at 3 years

4 years mid-swap rate at 4 years

5 years mid-swap rate at 5 years

10 years mid-swap rate at 10 years

20 years mid-swap rate at 20 years