Swaps as a Synthetic Asset Class

Abstract

As an alternative to investing in fixed-rate assets such as corporate bonds, investors may create synthetic fixed-rate assets by receiving fixed in a swap and investing cash in short-duration floating-rate assets. The interest rate swaps market has grown exponentially in the last decade, and is currently one of the most liquid markets in the world. Synthetic assets offer superior liquidity and diversification from issuer-specific risk, and have outperformed most other asset classes over the last two years.