An inverse floater swap in which the payer of the structured leg has the right to call off the transaction on any payment date after the preset lockout period. The floating rate payer can terminate the swap if the specified reference rate is believed or expected to drop further and further. This party agrees to pay a higher fixed rate in exchange for obtaining the right to cancel the deal.

The callable inverse floater swap can be especially attractive for issuers who want to hedge callability risk (i.e., the risk associated with a callable debt). This swap can also be instrumental to investors seeking to enhance return, since the fixed rate payer stands ready to pay a higher fixed rate relative to that of a vanilla swap.