Asset Swap
Last reviewed: September 2, 2026
An asset swap combines an investment asset—often a bond—with a derivative swap so the investor can change the nature of the asset’s cash flows or risk exposure without necessarily selling the asset itself.
Reviewed September 2026
Simple idea
An investor might own a fixed-rate bond but prefer floating-rate cash flows. By entering an interest-rate swap alongside the bond, the investor can exchange fixed-rate exposure for floating-rate exposure, subject to the terms of the swap.
Simple example
Suppose an investor owns a bond paying a fixed 5% coupon. The investor enters a swap in which the fixed cash flow is exchanged for a floating rate. Economically, the combined position can behave more like a floating-rate investment.
Why institutions use asset swaps
Asset swaps can be used to manage interest-rate exposure, compare relative value across bonds or change the currency or cash-flow profile of an investment. They are mainly institutional instruments and can be complex.
Main risks
The investor still faces risks from the underlying asset and also takes on swap-related risks, including counterparty risk, market risk and basis risk. The combined economics depend on both parts of the transaction.