Hi all,what is generally referred to as the US Swap Curve is generally (please correct me if I'm wrong) US Libor rates from 1 month to the 12 month. Thenceforth, the swap rates derived off of the Treasury curve.My question is as follows: whereas Libor rates are used as a "FLOATING rate" index ("BBAM" on bloomberg), aren't the rates of the curve derived from the Treasury curve ("USSW" on bloomberg) the FIXED rates that the market will pay in exchange for floating?Any clarification greatly appreciatedf

By definition, the Swap Curve is the series of fix rates that one pays in exchange for floating.

hi johnny, thanks for the reply.so right now we got 10 year rate at 4.57%. Is that the fixed rate i'd have to pay the market to receive floating? If so, which floating rate are we talking about in this case?moreover, on the shorter end of the curve, we got a whole series of libor rates. 3m Libor is at 3.64%. So if i enter into a 3 month now with Counterparty, i pay him 3.64% fixed and receive wherever 3month libor will be in 3months? is that how it works? thanks for the help

Ok so if 10 year swap rate is at 4.57%.This means, the fixed payer of the interest rate swap pays 4.57%pa (at semi-annual intervals) for 10 years.The fixed payer will then receive floating cashflows based on 6-month LIBOR.

Most houses use ED futures for the short end; they are much more liquid than swaps, and allow you to hedge your risks fluidly. Normally the USD curve is constructed out of very short dated Libor rates for deposits (up to the first IMM date), and then 20 futures, and then the 5,6,7,10,12,15,20,30 year swap rates ... with some houses including additional swap rates, and some dropping the 5y rate since it is too close to the 20th future. Virtually all swap curves are built off semi-annual fixed legs against 3m Libor (since these are the most liquid) even though you can find complete sets of quotes for tother USD swaps ... also, although USD swap rates are often quoted as a spread over treasuries, the swap rates are often more stable than the treasury rates.In other countries, usually only the first 12 futures are used, and in some only the first 8. It all depends on liquidity.

QuoteOriginally posted by: jomniOk so if 10 year swap rate is at 4.57%.This means, the fixed payer of the interest rate swap pays 4.57%pa (at semi-annual intervals) for 10 years.The fixed payer will then receive floating cashflows based on 6-month LIBOR.USD swaps are quoted against 3m Libor, not 6m, in general.The longer dated swaps are semiannual on a E30/360 basis, but the shorter dated ones are frequently quoted annual/money market (act/360).

QuoteOriginally posted by: NorthernJohnUSD swaps are quoted against 3m Libor, not 6m, in general.The longer dated swaps are semiannual on a E30/360 basis, but the shorter dated ones are frequently quoted annual/money market (act/360).Sorry about missing that detail. I assumed it was 6m since quotation is at Semiannual 30/360.

yes - the libor side has a 3m payment cycle and the fixed side has a semiannual one.... often (esp in inter-dealer trades) the libor side is agreed to be paid semiannually by using the two 3m Libor rates and compounding the interest from the first one.... also, dealers generally use fewer ed futures than 20, as liqiuidity in the 4th and 5th years (the "blues" and the "golds") has deteriorated significantly..... furthermore, if you do use 20 futures you cannot use a 5y swap rate as you will have overlapping info and your curve will be properly screwed.... finally the liquidity in the swap market below 5y is fantastically better than eurodollar futures.... for example the relative volume in trading of the first two years ("fronts" and "reds") of ed futures is incomparably smaller the trading volume of 2y swaps.... the reason that dealers use ed futures at all at this point is to give more curve-shape info to their pricing curve.... for example, swaps only trade actively in 1y increments, so using swap rates to build your curve starting in 1y will give you very questionable results for the 1.5 year rate (regardless of your interp method) whereas there is much more "shape" info embedded in the series of 3m e.d. contracts.... generally swap traders use the e.d. futures for this granularity but when pricing a deal they will parallel shif the points on the curve to reprice the 2y swap rate, as that is the more liquid commodity....

QuoteOriginally posted by: johnself11generally swap traders use the e.d. futures for this granularity but when pricing a deal they will parallel shif the points on the curve to reprice the 2y swap rate, as that is the more liquid commodity....I know this is a pretty old thread and much has changed in the way of forming your dicount and forward curves (most notably you now have different curves for getting fwd/discount rates) but I was wondering what you meant by a parrallel shift, how do you do that, I would imagine that is still relavent