-52-
was different than the rate that the dealer had negotiated on the
interdealer swap.
5. Decline in Interdealer Spreads
For interdealer spreads as of December 20, 1993, the
following table shows (in basis points) the bid, ask, and
midmarket rates, and the bid-to-mid spreads for nine common swap
maturities:
Maturity Bid Ask Midmarket Bid-to-Mid Spread
2-year 13.000 15.666 14.333 1.333
3-year 22.333 25.000 23.666 1.333
4-year 24.333 27.000 25.666 1.333
5-year 20.000 23.000 21.500 1.500
6-year 26.666 29.666 28.166 1.500
7-year 39.666 43.000 41.333 1.667
8-year 32.000 34.666 33.333 1.333
9-year 32.333 35.000 33.666 1.333
10-year 32.333 35.000 33.366 1.333
By 1993, the swap bid-ask spreads had narrowed from earlier
years because in part of competition. Average bid-ask spreads
for fixed-for-floating interest rate swaps with 2-, 5-, and
10-year tenors narrowed from 4 to 4.5 basis points in July 1991
to 2.5 to 3 basis points in July 1993.
III. Valuing Swaps
A. Relevant Valuation Standards
The three relevant valuation standards are fair market
value, market value, and fair value.
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