FAQs
What is an Execution Spread?
The execution spread is the cost of executing a swap for a given profile. It reflects the difference between the mid-market rate (the average of the bid and ask) and the ask rate (the price at which the bank is willing to execute the swap).
For Euros, this is typically around 1 basis point (0.01%), but it can vary depending on market conditions and liquidity.
Execution spread is essentially the mid-ask spread, representing the margin added by the bank for execution.
What is a Credit Spread?
The credit spread reflects the credit risk associated with the counterparty.
For example, on a 15-year, €150 million Euro swap, the credit spread can range between 10 to 30 basis points (0.10%–0.30%), depending on the credit quality of the underlying asset or counterparty.
Higher credit spreads typically indicate greater perceived risk for the bank.
How Are Your Forward Rates Calculated?
How Forward Rates Are CalculatedHow Are Your Discount Factors Calculated?
How Discount Factors Are CalculatedHow Often is Your Data Updated?
Our data updates depend on the currency and market liquidity:
Highly Liquid Currencies (e.g., most G10 currencies): Updates occur every 1 minute to ensure accuracy and alignment with current market conditions.
Less Liquid Currencies: Updates may occur less frequently
What Causes Discrepancies Between Bank Rates and BlueGamma Outputs?
Discrepancies may arise for several reasons:
Timing: Markets move quickly, and small timing differences can affect rates.
Rate Types: Banks may quote all-in rates, which include execution and credit spreads, while BlueGamma typically calculates mid-swap rates.
Profile Mismatches: Ensure the same dates, amounts, and currencies are used in both calculations.
Bank Errors: Rare but possible. Large discrepancies (e.g., >5bps) might require clarification from the bank.
What is the Difference Between Mid-Swap and All-In Rates?
Mid-Swap Rate: The fair value for a swap, excluding any additional costs or risks. This is the rate that gives the swap a Net Present Value (NPV) of 0.
All-In Rate: The mid-swap rate plus execution spread and credit spread
What Are Common Uses for Interest Rate Swaps?
Interest rate swaps are commonly used to:
Hedge Interest Rate Risk: Companies or investors use swaps to fix their borrowing costs or match cash flows.
Optimize Funding Costs: Swaps allow counterparties to exchange floating rate payments for fixed, or vice versa, based on market conditions.
Speculate on Rate Movements: Traders use swaps to take positions on future interest rate changes.
Are BlueGamma’s Rates Real-Time?
Our rates are indicative and update at regular intervals (1–10 minutes depending on the currency). While they are closely aligned with live market conditions, small timing differences or variations in methodology can cause slight deviations.
Additional Notes:
Indicative Nature of BlueGamma Rates: BlueGamma outputs are for informational purposes only and should not be considered as financial advice or an offer to transact.
Risk Disclaimer: Interest rate swaps involve market and credit risks. Always consult your advisors or compliance teams before entering into swaps.
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