10 Year Callable CMS Spread Swap
Dec, 2003
Notional Amount |
USD 25 million |
Investor Receives |
Year 1 |
: 8.00% |
Year 2-10 |
: Max { 2.00%, 2* (30YCMS - 2YCMS) } |
Investor Pays |
3 Mth USD LIBOR |
Cancellation Clause |
The Bank has the right to cancel this swap after 6 months and every three months thereafter.
This is a product designed specifically for the current state of the yield curve, incorporating the possible movement in rates over the next few months. Investor will receive a very high coupon of 8% for the first year. Thereafter, he will receive the maximum of 2 times the difference in the swap spread between the 30 year and 2 year or 2%. That is, his future coupon could be very high or 2% at the very least. The bank has the right to cancel the transaction after 6 months.
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