A swap in which one counterparty makes a fixed payment to the other counterparty against a floating spread that corresponds to the actual underlying credit spread of a third party. More specifically, one counterparty makes payments based on the yield-to-maturity of a predetermined issuer’s debt, and receives from the other counterparty payments based on equivalent benchmark yields (such as Treasury yields). The credit spread is measured as the difference between the yield of a given risky bond (such as a corporate discount bond) and the yield of an comparable Treasury bond.

This swap is also known as the credit spread swap.