An abbreviation for asset swap spread; a spread that is usually paid (when necessary) by the seller of an asset swap, in addition to a floating interest rate (such as LIBOR) to the buyer in return for payment (by the buyer) of the coupons distributed by the swap’s underlying bond. In other words, the floating-rate coupon is determined as a spread (ASW) over LIBOR.

Like any other spread, it serves as a price indication (actually, it is the price of the asset swap). The asset swap allows market participants that are obliged to pay LIBOR-based funding to receive the asset swap spread (ASW). Therefore, this spread depends on the credit risk of the underlying bond asset.

The generic formula for calculating the ASW is:

ASW= ASB – IRS

Where: ASB is the asset spread over the benchmark, and IRS is the interest rate swap spread. The former represents the asset (in this case: bond) redemption yield over that of a risk-free benchmark. The latter reflects the cost incurred on converting the fixed-coupon benchmark bonds into a floating-rate bond during the life of the asset (default swap), and is based on the swap rate for that maturity.