Swap Spreads??

[patso]

What exactly is SWAP spreads? Here is my dilemma:
1- I have read most posts here before posting this and there is no consistent answer. Definition of swap spread on google sites( including investopia) is: swap spread is the difference between libor and gvt treasury. Yet one of the advantages mentioned in the curriculum is that swap spreads are not influenced by government compared to nominal spreads….yet my understanding from the definition here is that both uses gvt treasury YTM.
2. From level 1 & 2, an investor swaps fixed rate for floating at libor plus swap spread…..and how is this different from point 1 above? Is interest swap spread for swaps different from swap spread for bonds???
3. CFAI says swap spread reflect the credit risk in the overall global economybut how???
NO DISRESPECT TO YOU FORUM CONTRIBUTORS, BUT COULD SOMEONE WHO WORKS IN SWAP/BOND MARKET ANSWER THIS……IN SIMPLE LANGUAGE PLEASE.

 

[Galli]

A spread is simply the difference between X and Y
X being the swap rate (based on Libor)
Y being the treasury rate, based on the treasury rate.
Libor Rates ≠ Treasury rates
Libor is a Commerical banking benchmark
Treasuries are a Government banking benchmark

 

[FrankCFA]

3. Swap rate reflects incremental credit risk associated with the banks that provide swaps compared to Treasuries.
Does CFAI say swap spread reflect the credit risk in the overall global economy?

 

[Galli]

FrankCFA wrote:
3. Swap rate reflects incremental credit risk associated with the banks that provide swaps compared to Treasuries.
Does CFAI say swap spread reflect the credit risk in the overall global economy?

It’s says it is a gauge of the overall credit risk of the global economy.

 

[FrankCFA]

Got it. Thanks.

 

[myriam2222]

Patso, the floating rate is not libor + swap spread. Swap spread is something else (see the guys answers above). To describe the floating rate of the swap, you would say that it is “indexed on a reference rate” ( which means that it is a ref rate, usually libor, + something (and that something is not called swap spread)).

 

[zulu007]

Agree with myriam2222.
Need to be careful with spreads and floating rate (not libor + swap spread)