Why Euro Swap Legs Use Different Day-Count Conventions

Summary

The document addresses why a euro LIBOR interest-rate swap may calculate floating and fixed interest accruals using different day-count conventions. It attributes the floating leg’s convention to the euro money-market standard, while the fixed leg uses an annual 30/360 basis selected for euro-denominated swaps.

The explanation is historical and market-convention based: when the convention was established, Deutsche Mark and ECU swaps already used 30/360, and the emerging euro market followed that practice, which was also reflected in broker quotations. The response points readers to ISDA conventions as a reference for swap terms. Its scope is narrow: it explains the origin of the convention rather than deriving it from valuation theory or comparing alternative bases quantitatively. It also remarks that LIBOR cessation means such swaps are now expected mainly for legacy reasons, so the answer should not be generalized to every modern interest-rate swap or currency.

Key ideas

• The floating leg follows the euro money-market day-count convention.
• The fixed leg of the euro-denominated swaps discussed uses annual 30/360 accrual.
• The fixed-leg basis carried forward conventions from earlier Deutsche Mark and ECU swaps.
• Market practice and broker quotation conventions helped shape the euro standard.
• The explanation concerns legacy LIBOR swaps and does not describe every current swap convention.

Tags

# Why is the fixed leg of a libor swap 30/360 and the floating is actual/360?


# Why is the fixed leg of a libor swap 30/360 and the floating is actual/360?












I have been looking at the following post (and comparing it to SWPM in Bloomberg)

https://kiandlee.blogspot.com/2021/07/interest-rate-swap-pricing-using-r.html

Why does the fixed leg accrue in 30/360 yet the floating leg accrues actual/365?

Is there some logic behind this?

## Answer by AKdemy (score 2, accepted)

https://quant.stackexchange.com/a/69723

Whenever you need a swap convention, just google ISDA.

The floating leg of swaps follows the euro money market convention. For the fixed leg, ISDA has concluded after consulting members that 30/360 (annual) is the most appropriate basis for calculating interest accrual on fixed payments for euro-denominated swaps.

The reason for adopting a 30/360 (annual) day count fraction is that back when this was decided, existing DEM and ECU swaps quoted on this basis and that the emerging practice for the euro is to follow the same approach, as reflected on broker screens.

That said, these swaps should only exist for legacy reason now after LIBOR cessation.

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.