Swap Spread¶
One-line definition¶
The swap rate minus the Treasury yield at the same tenor.
Formula¶
swap_spread = swap_rate - treasury_yield
Why PMs care¶
It reflects bank credit/liquidity conditions and funding-market technicals, distinct from pure Treasury duration risk — a portfolio can be swap-spread long or short independent of its outright rate view.
Limitations¶
This is a par-yield-vs-par-yield approximation. A precise swap spread compares the swap curve to the Treasury curve on a matched, zero-coupon basis, not par yields.