what is the basis in a basis swap?

terryturbo · November 7th, 2005, 9:43 am

The basis is the spread between the two floating rates.

eredhuin · November 10th, 2005, 11:38 pm

For example you might be looking to convert 3-month pay-float swap funding into one-month funding. You could execute a pay 1mo / recv 3mo swap.Generally I find that "Basis" is one of those words that means whatever you want it to mean, which is, usually "the difference between this and that thing". For example, FX basis is ascribed to the differential between market quoted forward fx rates and the so-called "no-arb" forward fx rate you would get from, say, a replication strategy involving going long in one currency's debt markets and borrowing in another's.