Another important spread measure is the swap spread.

In an interest rate swap, two parties (called counterparties) agree to exchange periodic interest payments. The dollar amount of the interest payments exchanged is based on a predetermined dollar principal, which is called the notional principal or notional amount. The dollar amount each counterparty pays to the other is the agreed-upon periodic interest rate times the notional principal. The only dollars exchanged between the parties are the interest payments, not the notional principal. In the most common type of swap, one party agrees to pay the other party fixed interest payments at designated dates for the life of the swap. This party is referred to as the fixed-rate payer. The fixed rate that the fixed-rate payer pays is called the swap rate. The other party, who agrees to make interest rate payments that float with some reference rate, is referred to as the fixed-rate receiver.