Rate accompli: Are rising interest rates bad for all assets?
Many Happy Returns
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What Is an Interest Rate Swap?
Roman: What is an interest rate swap? I've been hearing a lot about these things lately Roman. Swaps are cool. I love them. The way this works is it's an agreement whereby you pay say a fixed rate of interest over a certain period of time and in return you receive a floating rate of interest which used to be set according to LIBOR plus a spread. So we're literally swapping one stream of cash flows for another. Why would I do this? Well if you've got a bond and you want to get rid of the interest rate risk well you could do that with a swap.
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