Rates · Core
Interest Rate Swap
An interest-rate swap exchanges fixed coupons for floating (or the reverse) on a notional — the vanilla rates derivative.
Definition
One side pays fixed, the other pays a floating index (SOFR, historically LIBOR) on the same notional. No principal exchange on a vanilla IRS. The fixed rate that makes the swap worth zero is the par swap rate.
Why it matters
It is how you move duration without moving cash bonds. Spreads, SOFR vs Treasury, and discounting (SOFR CSA) are the modern plumbing.
Case
A corporates issues 10-year bonds and swaps to float. They wanted funding, not duration. The swap was the capital-structure choice.
How to read it
Index, discounting, and collateral. Par rate vs your DV01. LIBOR ghosts still live in old books.
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