Swap spread: Difference between revisions

Revision as of 12:54, 4 June 2025

Revision as of 12:56, 4 June 2025

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==Utilization==

Swap spreads are an indicator of the markets desire to hedge risk, the cost of that risk and the overall level of liquidity within the market in terms of participators ability and willingness to buy financial instruments. Firm performance and macroeconomic stability can be derived from the movements in swap spreads.<ref (name=Sclip, Girardone, C., & Miani, S. (2019)/> Therefore businesses and policy makers utilise swap spreads when generating economic activity forecasts and organisational P&L models. A blow out in swap spreads has indicated financial distress and general fear of amongst the markets, whereas swap spreads which are tightening may indicate economic stability and overall market prosperity.

==Limitations==