Swap rate

Definition

Swap rate in plain English

An interest-rate swap is a deal where two parties trade payment streams: one side pays a locked-in fixed rate, the other pays a floating rate that moves with the market. The swap rate is the exact fixed rate that makes the deal perfectly fair at the start — so neither side has to pay the other anything to enter, because both streams are worth the same today. It's like agreeing on a fixed monthly amount that, over the whole contract, is expected to match a bill that would otherwise float up and down. Traders watch swap rates closely because they distill the market's collective view of where future interest rates are headed.

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