Constant maturity swap

Variation of the fixed rate-for-floating rate interest rate swap with the rate on one side of the swap either fixed or reset periodically at or relative to LIBOR. The constant maturity side, is reset each period relative to a regularly available fixed maturity market rate. This constant maturity rate is the yield on an instrument with a longer life than the length of the reset period, so the parties to a constant maturity swap have exposure to changes in a longer- term market rate. Forward implied yield curves are of most importance. In general, a flattening or an inversion of the curve after the swap is in place will improve the constant maturity rate payer´s position relative to a floating rate payer. The relative positions of a constant maturity rate payer and a fixed rate payer are more complex, but the fixed rate payer in any swap will benefit primarily from an upward shift of the yield curve. The most popular constant maturity rates are yields on two-year to five-year sovereign debt. Constant Maturity Swaps can either be single currency or Cross Currency Swaps. The "price" is reflected in the premium or discount paid on the "constant maturity" leg of the swap. This premium or discount is close to the weighted average implied forward differential between the "constant maturity" defined, and LIBOR, over the life of the transaction.