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- Lehman Brothers Callable Securities An Introduction
- Lehman Brothers - Quantitative Portfolio Strategy - Currency Hedging in Fixed Income Portfolios
- Asset Swap Spreads
- Convexity and Volatility
- [Bank of America] Introduction to Cross Currency Swaps
- Lehman Brothers: Introduction To Bond Math
- OIS Basics
- Lehman Brothers - The Short-End of the Curve
- Hot-To Guide to Quant Models NOMURA
- Quantitative Asset Manage 102727754
- corporate bond pricing guide
- JP Morgan Fixed Income Correlation Trading Using Swaptions
- Can Tail Risk Hedging Be Profitable
- [Lehman Brothers, Harm Stone] Investing in Implied Volatility
- Lehman - Can Convexity Be Exploited
- Fx Swap Basis
- The ABC of Structured Products
- RBS Xccry Basis Swaps Strat
- Salomon_FRN
- FX Correlation and Cov Swaps

Sie sind auf Seite 1von 20

London EC1Y 8RD

RSA House

www.redington.co.uk 23rd September, 2010

Asset Swaps to Z-spreads

Overview

• Our weekly RedVision report includes charts (such as Figure 1) which Figure 1: Historical Z-Spreads on Index-Linked Gilts

show the historical Z-spreads on selected gilts 120

• Historically, nominal and index-linked gilts yields were below nominal 100 UKTI 2.5% 20

and real swap rates respectively 80

UKTI 1.125% 37

• As a result, swaps were a very popular tool used by pension funds to 60

hedge interest rate and inflation risks: 40 UKTI 1.25% 55

20

o “unfunded” 0

o positive spread to gilts -20

-40

• The historical relationship inverted in Q3 08 – gilt yields rose materially -60

above swap rates -80

• As a result: 02-Jan-07 02-Jan-08 02-Jan-09 02-Jan-10

o presently, longer dated nominal and index-linked gilts are more

attractive than swaps for interest rate and inflation hedging Figure 2: Historical Z-Spreads on Gilts

o this relationship needs monitoring to ensure that the nest 120

opportunities are captured

100 UKT 4.75% 20

The Z-spread is a theoretical spread, designed to allow a fair 80 UKT 4.75% 38

comparison between bond yields and swap rates 60

UKT 4.25% 55

40

• In this session, I will introduce the various building blocks necessary to

20

lead to an understanding of the Z-spread:

0

o The swap market; calculation of present values -20

o Zero coupon swaps ; the swap curve and derivation of discount -40

factors -60

o Asset swaps and different methods of asset swapping -80

o Z-spreads 02-Jan-07 02-Jan-08 02-Jan-09 02-Jan-10

o Inflation swaps & index-linked gilts

Source: Barclays Capital, Redington, Bloomberg

2

3

Asset Swaps to Z-spreads

Introduction to Swaps

Definition Figure 2: Interest Rate Swap

• A swap is an over-the-counter (“OTC”) derivative transaction where the counterparties Counterparty A

agree to exchange cash flows linked to specific market rates for a period of time

• One set of cash flows will typically be known – usually expressed as a fixed rate of interest

• The other set of cash flows will be unknown – for example, linked to short term rates or Collateral LIBOR Fixed Rate

inflation

• By definition, at the mid-market price, the present value of both sets of cash flows is the

Counterparty B

same at inception

Standardised documentation:

• International Swaps and Derivatives Association (“ISDA “) agreement

• Collateral governed by Credit Support Annex (“CSA”) Figure 3: Cash plus Interest Rate

Swap

Characteristics

Counterparty A

• An interest rate swap is an agreement to exchange fixed cash flows for variable cash flows

for example, 6m LIBOR1

• Cash + swap is very similar to a bond Collateral LIBOR Fixed Rate

• Paying LIBOR, receiving fixed rate: has similar interest rate exposure to buying a bond

• Paying fixed rate, receiving LIBOR: has very similar interest rate exposure to being short a

LIBOR

bond

Cashflows CASH

• Example: as at 5th July, 5yr GBP interest rate swap is quoted at 2.44%

• Every 6 months, in arrears, Counterparty A pays 6m LIBOR on swap notional LIBOR legs cancel out leaving

• Every 6 months, in arrears, Counterparty B pays 2.44% (at annual rate) on swap notional Counterparty B receiving a fixed

• See slide 6 for details rate

1London Interbank Offered Rate – the average calculated at 11:00am each day using a trimmed arithmetic mean (i.e. average after dropping the top and bottom

quartiles), based on submissions from a panel of contributor banks 4

Asset Swaps to Z-spreads

Present Values and Discount Factors

at Different Discount Rates

120

INTEREST RATE: i%

100 7.5%

PERIOD: n years 5.0%

80

1

PRESENT VALUE OF 1:

(1 i) n 60

40

This is also known as the “discount factor”

20

0

0 10

1Present value and discount factor calculations for bonds and swaps require detailed knowledge of day count and compounding conventions which is beyond the

scope of this presentation 5

Asset Swaps to Z-spreads

Interest Rate Swap Example

What is a Swap? Example: Cash Flows on a 5 year GBP Interest Rate Swap

Interest Rate Swap Cashflows

LIBOR payments - unknown

• All future cash flows on the fixed leg are known at inception

• LIBOR leg payments are unknown

• Forward LIBOR payments can be derived from the interest rate Fixed payments

swap curve (see page 9)

• Discount factors can also be derived for each payment date from

the swap curve (see page 9)

• BY DEFINITION, the present value of the fixed leg is equal to the

Periodic exchange of cash flows for life

present value of the floating leg at the time of the transaction of transaction

• Fixed rate weighted average of forward LIBOR rates over life of

swap

Example: 5year GBP Interest Rate Swap @ 2.44% Example: 5year GBP Interest Rate Swap @ 2.44%

Fixed Leg Floating Leg 2.0%

Discount Cash Present Cash Present 1.8%

Date 1.6%

Factor Flow Value Flow Value

1.4%

07 Jan 11 0.99486 1.23% 1.22% 0.52% 0.51% 1.2%

07 Jul 11 0.98896 1.21% 1.20% 0.60% 0.59% 1.0%

09 Jan 12 0.98153 1.24% 1.22% 0.76% 0.74%

0.8%

09 Jul 12 0.97235 1.22% 1.18% 0.94% 0.92%

0.6% Fixed Leg

07 Jan 13 0.96084 1.22% 1.17% 1.20% 1.15%

08 Jul 13 0.94771 1.22% 1.15% 1.38% 1.31% 0.4%

Floating Leg

07 Jan 14 0.93308 1.22% 1.14% 1.57% 1.46% 0.2%

07 Jul 14 0.91730 1.21% 1.11% 1.72% 1.58% 0.0%

07 Jan 15 0.90114 1.23% 1.11% 1.79% 1.62%

07 Jul 15 0.88439 1.21% 1.07% 1.89% 1.68%

Total 11.56% Total 11.56%

Source: Bloomberg, Redington Source: Bloomberg, Redington

6

Asset Swaps to Z-spreads

Introduction to Zero Coupon Swaps

ZC Interest Rate Swap Cashflows

LIBOR payments - unknown

• As for a par swap, which has semi-annual payments,

payments on a ZC swap are linked to periodic 6m LIBOR rates

and a fixed rate Fixed payments

• However, instead of semi-annual exchange of cash flows,

payments are compounded and exchanged at maturity

• Any desired cash flow profile can be structured using zero coupon

Single exchange of cash flows at end of

swaps transaction

• Zero coupon swap curve is very useful tool for calculating present

value of any series of future cash flows

THE MATHS1

• A key advantage is that it takes account of the shape of the swap

curve and uses a term specific rate for each cash flow • Fixed Leg: (1 ZCswaprate) n

• The discount factor is derived from the zero coupon swap rate (see n

i 1

i

1For illustration of concepts only: actual calculations require detailed knowledge of day count and compounding conventions, which is beyond the scope of this presentation

7

Asset Swaps to Z-spreads

Discount Rates and Swap Curves

• Comparison of swaps vs. bonds: Par and Zero Coupon Swap Curves

as at 5th July, 2010

• Bonds: each coupon payment and the maturity proceeds are 3.0%

discounted using a single rate – the bond yield – in order to

2.5%

obtain the dirty price

• Swaps: each cash flow discounted at a rate determined by the 2.0%

date on which it falls due

1.5%

SWAP CURVES

• A par swap rate is the rate on the fixed leg of a “vanilla” interest rate 1.0%

ZC Swap Rate

swap for the relevant maturity 0.5% Par Swap Rate

• Swap rates are available for any given maturity – however, liquidity and

transparency is greatest for whole number of years maturity dates 0.0%

• Zero coupon rates differ slightly from par swap rates

Derivation of Forward LIBOR & ZC Discount Factors

Implied Zero

Forward 6m Implied Zero

Term Par Swap Rate Coupon Discount

LIBOR Rate Coupon Swap Rate

Factor

0.5 1.02% 1.02% 1.02% 0.9949

1.0 1.11% 1.20% 1.12% 0.9890

1.5 1.25% 1.49% 1.24% 0.9815

2.0 1.40% 1.89% 1.41% 0.9723

2.5 1.60% 2.40% 1.61% 0.9608

3.0 1.79% 2.78% 1.80% 0.9477

3.5 1.97% 3.13% 1.99% 0.9331

4.0 2.15% 3.47% 2.18% 0.9173

4.5 2.30% 3.56% 2.34% 0.9011

5.0 2.44% 3.82% 2.49% 0.8844

8

Asset Swaps to Z-spreads

Derivation of Discount Factors

• The dark blue bars in the chart below show the semi-annual fixed rate

THE MATHS1

payments (expressed as annual rate) on a 1 year swap: 1.11%

• The first light blue bar is the 6m par swap rate: 1.02% • Present value of 1 year par swap fixed leg payments = present

• As this swap has just one cash flow, the par rate is, by definition, value of spot 6m LIBOR plus present value of 6m LIBOR 6m forward

identical to the ZC swap rate ParSwap1 DF0.5 ParSwap1 DF1 LIBOR0.5 DF0.5 LIBOR1 DF1

• The second light blue bar and the 1 year ZC discount rate are derived

from the fact that the present value of the light blue cash flows must • For zero coupon swaps, payment at maturity = compounded LIBOR

be the same as the PV of the dark blue cash flows leg – therefore:

1 1

• We find this comes to 1.20% DF1

(1 0.5 ZCswaprate1 ) 2

(1 0.5 LIBOR0.5 ) (1 0.5 LIBOR1 )

• Similar methods are applied to find each subsequent forward LIBOR • These two equations can be combined to calculate DF1 and LIBOR1

rate and hence each zero coupon swap rate

• The same process can them be applied to calculate DF1.5 and

LIBOR1.5 in a process known as “bootstrapping”

Derivation of Forward LIBOR & ZC Discount Factors

Implied Zero

Forward 6m Implied Zero

Term Par Swap Rate Coupon Discount

LIBOR Rate Coupon Swap Rate

Factor

0.5 1.02% 1.02% 1.02% 0.9949

1.0 1.11% 1.20% 1.12% 0.9890

1.5 1.25% 1.49% 1.24% 0.9815

2.0 1.40% 1.89% 1.41% 0.9723

2.5 1.60% 2.40% 1.61% 0.9608

3.0 1.79% 2.78% 1.80% 0.9477

3.5 1.97% 3.13% 1.99% 0.9331

4.0 2.15% 3.47% 2.18% 0.9173

4.5 2.30% 3.56% 2.34% 0.9011

5.0 2.44% 3.82% 2.49% 0.8844

Source: Bloomberg, Redington Source: Bloomberg, Redington

1For illustration of concepts only: actual calculations require detailed knowledge of day count and compounding conventions, which is beyond the scope of this presentation

9

Asset Swaps to Z-spreads

Introduction to Asset Swaps

Overview Simplified Asset Swap

• An asset swap is a derivative transaction that results in a Bond (assume at par) Bond

change in the form of future cash flows generated by an

asset

• In the bond markets, asset swaps typically take fixed cash Coupons

flows on a bond and exchange them for LIBOR (i.e. floating

rate payments)

• ASSET SWAP = BOND + INTEREST RATE SWAP Investor

Collateral 6m Fixed Rate

BOND BUYER Interest Rate Swap

LIBOR

• Separation of interest rate and credit spread views: by

removing interest rate exposure, remaining exposure is only Counterparty

to credit spreads

• Better matching of liability cash flows Asset Swap

BORROWER

• Fixed coupon bonds can be issued to meet demand, whereas ASSUMPTIONS

treasury management may prefer floating rate liabilities • Bond priced at par

• Swap notional = bond notional

Simplified asset swap • Swap payment dates = bond coupon payment dates

• Buy bond at par NET CASH FLOWS for Investor

• Enter into interest rate swap with maturity matching bond • Pays 100 for bond

• Swap spread = bond yield – swap rate • Receives 6m LIBOR

• Receives (Coupon/Bond Yield – Swap Fixed Rate)

Simplest “real world” asset swap • Receives 100 maturity proceeds

• Buy bond (price above or below par) • If the bond coupon (yield) is above the swap rate, Investor

• Enter into interest rate swap with maturity matching bond ends up receiving cash flows equivalent to a floating rate bond

• Choose swap notional to duration weight with payments equal to LIBOR + swap spread

• Swap spread = bond yield – swap rate

1

Asset Swaps to Z-spreads

Par/Par Asset Swap - Example

Overview Par/Par Asset Swap: cash flows Par/Par Asset Swap: ongoing

at inception and maturity cash flows

• One of several methods to address problem of bond prices departing

from par Bond Bond

• The “pull to par” is effectively amortised over the life of the bond:

o For bonds below par, yield > coupon At inception: At maturity: Coupons

o For bonds above par, yield < coupon Dirty Price 100

• Fixed leg of interest rate swap exactly matches the bond coupons

• For a high coupon: At inception: 6m

o Bond price above par 100 – Dirty Collateral LIBOR +/- Fixed Rate =

Price Spread Coupon

o Fixed leg will be worth more than the fixed leg of an

interest rate swap at market rates Counterparty Counterparty

• For a low coupon

o Bond price below par

o Fixed leg will be worth less than the fixed leg of an ASSUMPTIONS

interest rate swap at market rates • Investor pays par for bond

• Swap notional = bond notional

• The difference between the coupon and the swap market rate is • Swap payment dates = bond coupon payment dates

offset against the amortisation of the discount or premium vs. par NET CASH FLOWS for Investor

• Pays 100 for bond, irrespective of price

The net result is the Swap spread which is added to LIBOR leg • Receives 6m LIBOR + swap spread

• Swap fixed leg payments = coupon payments

• To recap: • Receives 100 maturity proceeds

• Part of the swap spread is amortisation of bond discount or • Investor ends up receiving cash flows equivalent to a floating

premium vs. par rate bond with payments equal to LIBOR + swap spread

• Remainder of swap spread is difference between bond

coupon rate and interest swap rate

1

Asset Swaps to Z-spreads

Introduction to Z-spreads

Z-spreads

We can now move on to the calculation of Z-spreads Zero Coupon Swap Curves

as at 5th July, 2010

4.5%

Definition

4.0%

• The Z-spread is a purely theoretical concept designed to

3.5%

allow a bond yield to be compared to a swap rate as fairly as

possible 3.0%

• The Z-spread is defined as the size of the shift in the zero 2.5%

coupon swap curve such that the present value of a bond’s 2.0%

1.0% ZS Swap rate +160.7bp

• Z-spreads are useful measure of asset swap relative value 0.5% ZC Swap Rate

0.0%

1.05

Z-Spread Calculation - 4% 5 year GBP bond at Par

Par Swap + Z- Discount Factor

Term Par Swap Rate Bond Cash Flow Present Value

spread (160.7bp) 1.00

DF ZC Swap +160.7

0.5 1.02% 2.63% 2.00% 1.97%

1.0 1.11% 2.72% 2.00% 1.95%

0.95

1.5 1.25% 2.85% 2.00% 1.92%

2.0 1.40% 3.01% 2.00% 1.88%

2.5 1.60% 3.21% 2.00% 1.85% 0.90

3.0 1.79% 3.41% 2.00% 1.81%

3.5 1.97% 3.60% 2.00% 1.77%

4.0 2.15% 3.79% 2.00% 1.72% 0.85

4.5 2.30% 3.94% 2.00% 1.68%

5.0 2.44% 4.09% 102.00% 83.45%

100.00% 0.80

12

Asset Swaps to Z-spreads

Introduction of Zero Coupon Inflation Swaps

Definition Inflation Swap

• As for all swaps, an inflation swap is an OTC agreement where Counterparty A

the counterparties agree to exchange known cash flows for

unknown cash flows

• In the case of inflation swaps a fixed rate is exchanged for Collateral RPI Fixed Rate

inflation

Characteristics Counterparty B

• A zero coupon inflation swap is an agreement to exchange a

FIXED PAYMENT

INFLATION

fixed cash flow for an unknown cash flow equal to the change

in the RPI index over the period

Unknown cash flow

Comparison with index-linked bonds => known cash flow

• The direct comparison with index-linked gilts is less

straightforward than for an interest rate swap

Cashflows1

• Example: as at 5th July, 5yr GBP zero coupon inflation swap is

quoted at 3.20%

• After 5 years, Counterparty A pays the change in the RPI

index (= RPI5 /RPI0 ) on swap notional

• After 5 years, Counterparty B pays 3.20%, compounded for 5

years (=1.0325 = 127.7%) on swap notional THE MATHS1

• Fixed Leg: (1 ZCRPIswapraten ) n

Other forms of inflation swap

• There are other forms of inflation swap – for example with RPI n

annual inflation linked cash flows • Inflation Leg:

RPI 0

• The ZC swap is the most useful and common form

1For

illustration of concepts only: actual calculations require detailed knowledge of day count and compounding conventions, inflation index publication lags & seasonality

which is beyond the scope of this presentation 13

Asset Swaps to Z-spreads

Index-Linked Gilts

Key Features

• Index-linked gilt coupons (see chart) and principal payments

are linked to inflation (with a lag)

Real Yields

• The real yield can be calculated in two stages:

o Estimate future coupon and principal payments using

an assumed inflation rate e.g. 3% Index-Linked Gilt Coupons

o Find the interest rate at which the present value of with 3% Inflation

these payments is equal to the dirty price (i.e. price 0.60%

plus accrued) 0.58% Inflation adjustment

• Real yield = nominal yield – inflation rate1 0.56%

Stated coupon

• It turns out that the real yield is not very sensitive to small

changes in the assumed inflation rate 0.54%

0.52%

ASSET SWAPPING INDEX-LINKED GILTS 0.50%

• In order to do an asset swap, we need to be able to swap a

0.48%

fixed rate (i.e. the coupon on a nominal bond) against a floating

rate 0.46%

• Therefore, asset swapping linkers is a two stage process: 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5

o Swap inflation linked payments to fixed payments using Years

a series of zero-coupon inflation swaps, one for each Source: Redington – illustrative only

payment

o Swap the fixed payments for floating payments using

interest rate swaps

• The Z-spread is then defined as before – i.e. the parallel shift in

the ZC swap curve such that the present value of the fixed

payments derived above is equal to the dirty price of the bond

14

Asset Swaps to Z-spreads

Z-spreads on Government Bonds

History Historical Z-Spreads on Index-Linked Gilts

• Swap rates exceeded government bond yields 120

• Key drivers: 100 UKTI 2.5% 20

o Supply & demand – note 2001 when, in UK, huge 80

UKTI 1.125% 37

quantities of long dated funding by Telcos bidding for 3G 60

40 UKTI 1.25% 55

licences moved swap spreads to >100bp

20

o Market participation – trend tightening of swap spreads

0

on back of LDI activity in mid-2000s

-20

o Collateralised counterparty risk on mark-to-market vs. -40

government risk on coupons and principle -60

• Banking crisis inverted relationship – new paradigm? -80

02-Jan-07 02-Jan-08 02-Jan-09 02-Jan-10

Recent developments

• Banking crisis forced deleverage of bank balance sheets and Historical Sovereign Credit Default Swap Rates

extensive de-risking by hedge funds 200

• Implications France 5Y CDS

180

o unwinding of long bond/short swap positions Germany 5Y CDS

160

o natural counterparties to take advantage of dislocation

UK 5Y CDS

were the same way around 140

US 5Y CDS

o relatively large bank holdings of index-linked gilts as 120

Spread (bps)

largest source of inflation to hedge inflation swaps 100

o issuance of inflation linked debt dried up due to issues

80

with monoline insurers who had wrapped much of this

60

debt

• Bank balance sheets rapidly delevered – since then, other drivers: 40

o Large budget deficits => massive supply of government 0

bonds Jul 2007 Jan 2008 Jul 2008 Jan 2009 Jul 2009 Jan 2010

o Corporate consolidations => little corporate bond supply Source: Barclays Capital, Redington, Bloomberg

15

Asset Swaps to Z-spreads

Z-spreads on Government Bonds (cont.)

Funded vs. Unfunded Exposure

• Government bonds

o Investing in a government bond results in full credit exposure to the government for both coupons and principal

o In event of default or debt restructuring, coupon and principal payments will be impaired to varying degrees

o Balance sheet constraints resulted in corporate bond spreads widening materially more than credit default swap

rates => substantial negative basis

o Liquidity premium

o Interest rate swaps are unfunded

o The net present value (NPV) or price of a swap is by definition zero at inception

o Counterparty exposure arises as mark-to-market fluctuates through time

o Such exposures are fully collateralised under the terms and conditions of the CSA

o Therefore, for a loss to arise, an adverse market move AND a counterparty default are required simultaneously

o A further consideration is transactions costs associated with replacing the trade in adverse market conditions

16

Asset Swaps to Z-spreads

Corporate Bonds: Swap Spreads and Credit Spreads

• Exactly the same methodology can be used for corporate bond asset swap calculations Swap Counterparty

o Historically, this is where the bulk of asset swap market activity occurred

o The inversion of the relationship between government bonds and swaps resulted in a Fixed Rate LIBOR

Collateral

big pick up in activity in government bond asset swaps

Credit spreads Fund

• Traditionally:

o Credit spread = corporate bond yield – gilt yield Fixed

Coupons

• Corporates treasurers often swap fixed rate issuance back into floating rate, based on a funding

target of LIBOR +x% Corporate Bond

o Relative shape of swap curve and gilt curve drive issuance opportunities

• Gilt vs. swap spread a significant driver of gilt vs. corporate spread

unsecured and uncollateralised

• Market looks at asset swap spreads of corporates

• Fund therefore has default risk

exposure to the corporate bond

ANALYSIS OF CREDIT SPREADS • Average recovery rates in default have

• Representing compensation for: historically been assumed to be 40%

• Default risk – loss of coupons and principal but recent experience suggests worse

• Illiquidity recovery rates

• Risk premium

• Incremental return volatility

• Cost of funding

CONCLUSION

Z-Spreads are Useful Theoretical Model to Enable Comparison of Relative Value of Corporate Bonds

17

Appendix

Overview of Alternative Asset Swap Methods

Asset Swaps to Z-spreads

Asset Swaps – Overview of Alternative Methods

• The table below summarises a range of methods used to calculate asset swap spreads

Method Definition Yield Curve Directionality Simplicity Use for Relative Value

Exposure

Yield/Yield • Spread = difference between bond • Spread widens as • Convexity not hedged • The most simple • Good for flat curves

yield and same maturity swap rate curve steepens for – therefore hedge ratio ASW method • Poor for comparing bonds

• Duration weighted bonds above par needs adjusting on with very different coupons

large rate moves in steep curve environment

Par/Par • Spread added to floating leg such that • For given bond • Par/par spread falls as • Relatively complex • Spread highly dependent on

swap NPV = 100 – Bond dirty price price, par/par swap yields rise • Widely used, dirty price of bond therefore

• Bond bought for par spread falls as swaps • Trade not duration therefore good not idea l for RV use

• Swap fixed leg = bond coupons curve steepens neutral market familiarity

• Floating leg notional = bond notional

Market • Spread added to floating leg such that • For given bond • MVA spread rises as • Hard to estimate • Spread depends on dirty

Value swap NPV = 100 – Bond dirty price price, par/par swap yields rise P&L price of bonds – but not as

Accrued • Bond bought for dirty price spread falls as swaps • Trade not duration • Not frequently much as par/par, especially

or • Swap fixed leg = bond coupons curve steepens neutral trades for high coupon bonds

Proceeds • Floating leg notional = bond dirty price • Not widely traded, but

• Original dirty price – 100 paid to ASW preferred to par/par for RV

buyer at maturity calculations

Z - spread • Spread when applied to zero coupon • Some exposure to • Not directional • Straightforward to • Generally preferred for

swap curve such that when used to PV changes in relative calculate for most relative value use

bond cash flows, results in bond dirty steepness of risk systems

price government and

swap curves

Source: Morgan Stanley, “Using and Trading Asset Swaps”, 11 th May, 2006

1

Contacts

Disclaimer

Contacts

Redington Direct Line: +44 (0) 20 3326

13-15 Mallow Street 7147

London EC1Y 8RD Telephone: +44 (0) 20 7250

3331

David Bennett

Director | Investment Consulting

david.bennett@redington.co.uk

www.redington.co.uk

Disclaimer For professional investors only. Not suitable for private customers.

The information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your private information and is for discussion purposes only. A

variety of market factors and assumptions may affect this analysis, and this analysis does not reflect all possible loss scenarios. There is no certainty that the parameters and assumptions used in this

analysis can be duplicated with actual trades. Any historical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange

rates, interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sell any securities, futures, options, or

investment products on your behalf. Unless otherwise stated, any pricing information in this message is indicative only, is subject to change and is not an offer to transact. Where relevant, the price

quoted is exclusive of tax and delivery costs. Any reference to the terms of executed transactions should be treated as preliminary and subject to further due diligence .

Please note, the accurate calculation of the liability profile used as the basis for implementing any capital markets transactions is the sole responsibility of the Trustees' actuarial advisors. Redington

Ltd will estimate the liabilities if required but will not be held responsible for any loss or damage howsoever sustained as a result of inaccuracies in that estimation. Additionally, the client recognizes

that Redington Ltd does not owe any party a duty of care in this respect.

Redington Ltd are investment consultants regulated by the Financial Services Authority. We do not advise on all implications of the transactions described herein. This information is for discussion

purposes and prior to undertaking any trade, you should also discuss with your professional tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis

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Redington Limited (reg no 6660006) is a company authorised and regulated by the Financial Services Authority and registered in England and Wales. Registered office: 13-15 Mallow Street London

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