Asset-Swap

An asset swap is a compound financial instrument, which is marketed by banks in the interbank market and to institutional investors.

It consists of two parts: a swap and a bond (bond, note), the latter usually equipped with a fixed interest rate (coupon). It fits a leg (Fixed Leg) of the swap regarding nominal value, the nominal interest rate (also called coupon) and payment date exactly to the interest payments of the bonds. A typical case of an asset swap is a bond with a fixed interest rate, which is distributed along with a payer swap with the same coupon. In this case, the buyer of an asset swap by the issuer of the bond receives the fixed rate paid and are these even immediately on to the swap counterparties, of which he gave the variable interest rate (often in Europe the 3- month Euribor) plus a spread receives. On balance, therefore, the buyer acquires a synthetic floaters ( floating rate note ), a floating rate note. The package of bond and swap bears the credit risk of the bond (ie failure of the issuer), but has low interest rate risk because the interest rate received on the swap is variable. And that is also the reason why these packets are formed: Frequently investors want only one ( paid by the spread ) at the credit risk, but not the interest rate risk. Companies emit other hand, very often bonds with fixed interest rate and a correspondingly high interest rate risk. Asset swaps are often traded in the form of par - par - structures. For a bond, the market for themselves, for example, at 95 exchanges, the buyer pays nevertheless par, ie 100 for the overpayment 5 an additional interest is determined, the present value of just 5 coverage, coverage will be added to the spread (similar to a premium). The other variation to Par - Par Yield -yield, where both bond and swap memory is not 100 ( par), but traded at current market conditions are.

• Financial market activities