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Interpreting Overnight and Tom-Next FX Swap Points

Article Quant Q&A · Author: xavier
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Summary

This note explains why overnight FX swap points can be larger than tom-next or spot-next points even when the quoted forward points rise with tenor. The key is to compare like periods: in the example, the overnight quote covers three days, while the other quoted periods cover one day. Dividing points by the relevant number of days, or converting them to implied rates and basis, gives a more useful relative comparison.

Settlement conventions also matter. EUR/USD is described as a T+2 pair, so both overnight and tom-next value dates fall before the spot date. For T+1 pairs such as USD/CAD, tom-next is not applicable. The answer also outlines how to derive value-today and value-tom prices by inverting the quote and taking cumulative sums, and gives example offsets. These details concern the quoted setup; actual interpretation depends on pair conventions, value dates, and quote direction.

Key ideas

  • Compare FX swap points after adjusting for the number of days covered by each quote.
  • Overnight can span more days than tom-next, so its total points may be larger.
  • EUR/USD uses T+2 settlement, placing both overnight and tom-next value dates before spot.
  • Tom-next does not apply to T+1 pairs such as USD/CAD.
  • Implied rates or basis can help compare FX forward values across periods.

Tags

ForexCarryDerivatives pricing
Full text
# Why is overnight more expensive than spot in an increasing forward swap values table?


# Why is overnight more expensive than spot in an increasing forward swap values table?












I'm looking at EUR/USD fwd prices. Currently they are the following ones:

These are the swap points to be added to the spot price. It seems it increases with time. Therefore, since overnight value date falls before spot value date, I'd expect ON swap points to be negative, but it's not the case. It's not only grater than spot but also one TN, which is after spot.

Is there any reason for that or I'm just understanding these values wrong?

Thank you!

## Answer by river_rat (score 2, accepted)

https://quant.stackexchange.com/a/54153

Looks like day count to me, as in overnight is a three day run in this example while tom-next and spot-next are only one day runs. It is easier to use points per day to work out relative value (or actual implied rates and/or basis depending what you are doing) in FX forwards. Also, EURUSD is a T+2 currency pair so overnight is today to tomorrow while tom-next is tomorrow to the spot date. Both value dates would be before spot. This contrasts to T+1 currency pairs like USD/CAD where you only have overnight and spot-next quotes and tom-next doesn't make sense. In FX to get value today and tom all in prices you invert the quote and take cumulative sums. In this case value today would be -79/-74 and value tom would be -20/-18 off the spot rate.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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