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For most of the past decade that has been the case, but since mid-2011 two two markets have diverged, with swap interest rates for five-year money as much as 1.5 percentage points below cash interest rates (see chart).
In one week in September 2008, DPS received a swap interest rate of 3.42% from J.P. Morgan but had to pay its bond holders 14%.
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And they do not explain why swap spreads have risen so fast this year.Mr Bianco argues that two things dominate the pricing of interest-rate swaps: interest rates and credit concerns.
The Bank provides an array of financial risk management products including foreign exchange swaps, currency conversions, interest rate swaps, interest rate caps and floors, and commodity swaps.
Start hanging out more, and talk about things that you and him are both interested about on MSN/Yahoo/AIM, etc. Keep swapping interests and see how it goes!
Most (77%) swaps are interest rate swaps.
"For clearing of credit default swaps and interest rate swaps to actually work and lessen the systemic risk they pose to the global financial payments system, you need to have multiple clearing brokers involved with the clearinghouse to distribute the risk," said Michael Hisler, a co-founder of the Swaps and Derivatives Market Association.
This time one likely savior is Barclays Capital's pioneering system to trade interest-rate swaps electronically.
Instead, AOL is trying to persuade AT&T to swap its interest in T.W.E. for a stake in a newly created Time Warner Cable, which would include AOL Time Warner's cable systems.
This market allows people to "swap" fixed interest payments for floating ones.
Like swaps on interest rates and foreign currency, credit swaps outstanding dwarf the underlying bonds in circulation.
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