Basis Swap


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Basis Swap

An interest rate swap in which both legs (the interest rates that are swapped) are both floating rates. The floating rates are calculated over different bases; for example, one might be linked the LIBOR and the other to the fed funds rate. A basis swap is used to help a company hedge against its basis risk.
References in periodicals archive ?
Devon mitigated the weak pricing environment in Canada through its Western Canadian Select basis swap hedge position that generated $144 million of cash settlements in the quarter.
Economists explore contemporary finance and economic development in the Asia-Pacific region from such perspectives as short-term cross-currency basis swap and Japanese government bond markets under non-traditional monetary policy, modeling critical success factors of Thai retailers: an interpretive structural modeling approach, Central Asia and China: financial development through cooperation with Russia, corporate political activity and financial performance: a corporate social responsibility perspective, and explaining systemic risk in the Latin American banking industry 2002-15.
This means US companies can obtain dollar funding by issuing debt in euros and then swapping it back into dollars, although this increases strains in the cross-currency basis swap market, the BIS said.
The cost to Gulf issuers of swapping their euros back into dollars has been increasing; the seven-year cross-currency basis swap is now at minus 39 bps its most expensive since mid-2012 according to Thomson Reuters data.
To a lesser extent, five-year basis swap spreads (in essence the cost of hedging against USD movements over five years) have recently risen against the British pound, the euro and the Swiss franc, although they remain well below the highs during the euro crisis of 2011-12.
To a lesser extent, five-year basis swap spreads (in essence the cost of hedging against dollar movements over five years) have recently risen against the British pound, the euro and the Swiss franc, although they remain well below the highs during the euro crisis of 2011-12.
This means that issuers need to swap the New Zealand dollars they receive from a Kauri issue into the desired currency, by means of a cross-currency basis swap (see box B).
Additionally, complicated factors like cross-currency basis swap markets can have a tremendous impact on the ultimate pricing, increasing or decreasing favorability by 50 or even 100-plus basis points per year.
"However, the current low interest rate environment means that rates on the euro side of a 3 month basis swap have now moved decisively into negative territory, for the first time ever."
The three-month cross currency basis swap stood at 33.5 points below the Euribor.
1256(b)(2) to provide that no "interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement" would be treated as a Sec.
The one-year euro/dollar currency basis swap spread, which expands when banks become unwilling to supply dollars to each other, narrowed to 25 basis points from 34 bps Thursday, its widest in three months.