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Padaiu
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Posts: 41
Joined: June 10th, 2009, 3:41 pm

Why do bond investor use par-par asset swap ?

April 22nd, 2020, 1:32 pm

Im trying to understand how it works in practice since the investor buys the bond at whatever price it is issued at (which is not price) then im trying to understand why they would par-par asset swap it, and what the economics and rationale of the trade are. Thanks!
 
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DavidJN
Posts: 1770
Joined: July 14th, 2002, 3:00 am

Re: Why do bond investor use par-par asset swap ?

April 22nd, 2020, 3:10 pm

You want to download the paper Introduction to Asset Swaps by Dominic O'Kane, Lehman Brothers. 

https://www.deriscope.com/docs/AssetSwaps_LehmanBrothers_2000.pdf
 
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fyvr
Posts: 26
Joined: November 15th, 2015, 3:10 pm

Re: Why do bond investor use par-par asset swap ?

May 2nd, 2020, 1:33 pm

Short answer (there are longer ones): the par-par ASW spread is a 'pure' credit number, in the same way that a CDS spread, or the spread on a par-priced FRN, is. Therefore it is of considerable utility from a relative-value perspective, if all bond prices are expressed as par-par asset swap spreads then they are comparable.
That is not true for yield-yield or MV asset swaps.
 
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Padaiu
Topic Author
Posts: 41
Joined: June 10th, 2009, 3:41 pm

Re: Why do bond investor use par-par asset swap ?

May 8th, 2020, 7:12 am

Thanks

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