Aligning Forward-Starting Swap Dates with Swap or Swaption Conventions
Summary
The document addresses how effective and maturity dates are set for forward-starting interest rate swaps when a forward-period date falls on a non-business day. It distinguishes a swap-dealer convention, which aligns the forward swap with the date schedule of a spot swap, from a swaptions convention, which measures the underlying swap period relative to a swaption expiry. Different schedule definitions can therefore be used even when the trade is described with the same forward tenor and swap tenor.
The response notes that market practice may vary by currency, dealer, and client, and that schedule systems may offer both alignment choices. Its worked calendar example shows a regular ten-year swap and a five-year-forward, five-year swap ending on the same date when dates are adjusted according to the stated convention. The example does not demonstrate a holiday-date discrepancy because the relevant date does not fall on a holiday. Traders should therefore establish which convention applies rather than infer dates from tenor labels alone.
Key ideas
- Forward swap dates depend on the schedule convention used to interpret the forward and swap tenors.
- Swap and swaption alignment conventions define the underlying periods differently.
- Business-day adjustments affect effective dates, payment schedules, and maturity dates.
- Market conventions can differ across currencies and counterparties, so the schedule rule should be explicit.
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# Calculating key dates for a Forward Starting Interest Rate Swap versus a Spot IRS # Calculating key dates for a Forward Starting Interest Rate Swap versus a Spot IRS How are the Effective Dates and Maturity Dates of a forward starting IRS (eg: EURIBOR3M 5Y5Y) handled when the forward starting term ends on a non-business day? And if that date is adjusted, how does that impact the maturity date of the forward starting IRS? For example if I trade on 6th Jan 2023, the T+2 spot date becomes Monday because I am trading on a Friday. For a EURIBOR 10Y that would result in a maturity date of 9th Jan 2033. For the matching 5Y 5Y traded on the same day, the Effective Date falls on a Sunday (9th Jan 2028) which I presume would be adjusted to the Monday (10th Jan 2028)...which would then imply a maturity date of 10th Jan 2033. Which is mismatched vs the 10Y. If, however, the Effective Date remains unadjusted, the maturity of the 10Y would match the 5Y5Y but the forward term would be less than 5 years. How does the market get around this issue? ## Answer by Attack68 (score 2) https://quant.stackexchange.com/a/77566 If you trade a 10Y IRS, the second half of that IRS represents a 5Y5Y from the point of view of a swaps dealer. If a swaptions dealer trades a 5Y5Y Swaption the 5Y swap that this refers to is measured as of 5Y derived from spot derived from a 5Y expiry measured from today. This is two different definitions. This is why the `Schedule` generator in my own fixed income library (https://rateslib.readthedocs.io/en/latest/api/rateslib.scheduling.Schedule.html#schedule) has two different parameters available, a `swaps_align` or `swaptions_align` version. I have also had discussions with Bloomberg about this when they have been implemeting definitions for schedules. Local currency broker markets also use one or the other above or both if no-one religiously sticks to a variety. Bloomberg reported to me that they had various feedback for the use of both methods and by different client / dealer types. Ideally Bloomberg would like to provide both definitions but they have chosen to adopt the swaptions variety in a first draft of what they are building. I am a swaps dealers so my own library defaults to the swaps align method. ``` Today: Friday 6th Jan 2023 Spot: Tuesday 10th Jan 2023 A regular 10Y ends on Monday 10th Jan 2033 and the swap has 10th rolls. A 5Y5Y (Swaps Align) starts on Monday 10th Jan 2028 ends on 10th Jan 2033 and has 10th rolls. A 5Y5Y (Swaptions Align) starts on Monday 10th Jan 2028 ends on 10th Jan 2033 and has 10th rolls. ``` All the above periods are regular periods when accounting for the regular adjustment of business days. There is a more interesting example on that documentation link, since in this example there is no difference becuase nothing lands on a holiday at the 5y point.
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