Conceptual Links Between Interest Rate Swaps and Bonds

Summary

The document raises a conceptual comparison between bonds and interest rate swaps. It suggests viewing LIBOR on a swap as analogous to a bond’s repo funding rate, and a swap’s fixed payments as comparable to bond coupons. It then asks whether there is a systematic framework for mapping concepts across the two instruments, including what corresponds to a bond yield in swap analysis and what corresponds to an annuity in bond analysis.

No answer, valuation framework, formulas, or examples are included, so the analogies remain prompts rather than established equivalences. Bonds are securities with principal repayment and coupon cash flows, while swaps are derivatives exchanging payment streams under contract terms; a useful comparison would need to account for discounting, funding, collateral, and floating-rate resets. The post identifies a learning question but does not resolve it or provide evidence for a particular mapping.

Key ideas

• The post compares swap floating-rate payments with bond funding costs and swap fixed payments with bond coupons.
• It asks how to map yield and annuity concepts across bonds and swaps.
• The document provides no equations, valuation method, or worked comparison.
• A complete comparison would need to distinguish bond cash flows from contractual swap payment streams.

Tags

# Comparing swaps with bonds


# Comparing swaps with bonds












Swaps and bonds have a lot of similarity although one is a security and the other is a derivative. For example,

- libor for swaps is like repo rate bonds (thinking them both as the funding leg)

- fixed payment is like bond's coupon

I feel that there could be a systematic way to link or think about them under the same framework/logic. All the concepts in bonds must have a similar concepts in swaps and vice verse?

For example,

- what is for bonds as annuity for swaps ?

- what is for swaps as yield for bonds ?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.