Quality Spread Differential (QSD)
In an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive. Investopedia Says:
For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let's say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR -0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%.
Since the QSD is positive, both companies would benefit from entering into a swap transaction. Related Terms:
Credit Default Swap
Credit Rating
Derivative
Interest Rate Swap
London Interbank Offered Rate - LIBOR
Swap
Swap Dealer
Swap Spread
Variance Swap |