The difference between the yield-to-maturity of a bond and the par swap rate to the maturity of the bond:
Matched maturity asset swap spread = bond YTM – par swap rate
For example, an investor buys $100 million worth of U.S. Treasury bonds at a yield of 4.60%, whilst he pays 5.10% on a $101 million of a swap with a maturity equal to the bond’s maturity. The matched maturity swap spread is:
Matched maturity asset swap spread = 5.10% – 4.60% = 0.5%
or 50 basis points.
This spread is exposed to the so-called convexity risk, i.e., the trade is duration-weighted, but not convexity-weighted.
It is also known as a yield-yield asset swap spread.
