A spread option (an interest rate derivative) that pays a coupon based on the differential between the CMS rate over two different maturities against a funding rate. For example, the holder may receive 6% in year one, and a fixed coupon in proportion to the number of business days the spread (between 30-year CMS and 10-year CMS) remains above 0.5% out of the total number of business days within the period. For this right, the holder pays, say, LIBOR minus 20 basis points.
This spread is also known as a CMS spread option.
