Basis Swaps

A basis swap is an interest rate swap (IRS) in both legs are based on floating interest rates. However, the two rates may be ‘based’ on a different benchmark or timescale. For instance, a mortgage lender may receive interest on a monthly basis, but have funded itself in the money markets benchmarked against a 3-month LIBOR (London Interbank Offered Rate).  Using basis swaps is an effective way of evening out differing cash flows. ICAP has two dedicated basis swaps teams in London and New York.