Asset Swap Spread (ASW)

The Asset Swap Spread represents the credit component of a bond's yield in swap terms. In an asset swap, an investor buys a fixed-rate bond and enters a swap to receive floating (e.g., SOFR) plus a spread. The ASW captures the difference between the bond's fixed cash flows and the par swap rate, adjusted for any premium or discount to par. Formula (simplified): ASW ≈ (Coupon − Swap Rate) + (100 − Clean Price) × freq / (TTM × freq) in percentage, converted to bp. For par bonds, ASW ≈ I-Spread. For discount bonds, ASW > I-Spread (the price discount adds extra spread). For premium bonds, ASW < I-Spread. Asset swaps are fundamental to credit relative value trading — they strip out interest rate risk, leaving pure credit exposure priced in floating-rate terms.