Mid-swap (MS) is the average of bid and ask swap rates used as a benchmark for calculating total interest rate cost of issuing a variable rate bond. Bid is the fixed rate that is received in exchange for a floating rate (LIBOR), while ask is the fixed rate which is paid for that floating rate (LIBOR). For example, the total cost for a bond that pays LIBOR plus 100 basis points (bps) is:

The bond issuer pays mid-swap fixed rate to the market maker and LIBOR plus a given premium to investors and receives LIBOR:

Pay:         MS to market maker

Pay:         LIBOR + 100 bps to bond investors

Receive:   LIBOR

Therefore:

Total cost= MS – LIBOR + LIBOR + 100 bps = MS + 100 bps