Constructing a Swap Butterfly with Spot or Forward-Starting Swaps

Summary

The document raises a practical question about constructing a 2–5–10 year interest-rate swap butterfly. It asks whether the position should be assembled from spot-starting swaps or from forward-starting swaps, giving an example that combines a forward-starting two-year swap and a forward-starting five-year swap.

No answer or analysis is included, so the document does not explain how to set the butterfly weights, compare curve exposures, or account for pricing, carry, roll, or liquidity. Its value is limited to identifying a construction choice that a rates trader would need to evaluate: spot and forward-starting swaps reference different start dates and may produce different exposures even when their maturity labels suggest a comparable butterfly.

Key ideas

• A 2–5–10 year swap butterfly can be considered using spot-starting or forward-starting swaps.
• The proposed forward construction combines swaps that begin several years in the future.
• The document leaves butterfly weighting and exposure matching unresolved.
• Start dates may affect the trade’s rate exposure even when swap tenors appear comparable.

Tags

# swap butterfly trade


# swap butterfly trade












for example 2-5-10 year butterfly trade. Butterfly can be constructed via spot swap trades? I am wondering if it make sense to construct it via forward starting swap trades ? i.e., constructing it from 3 year forward starting 2Y swap and a 5 year forward starting 5 year swap? what are the considerations?

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