The difference between the fixed rate leg of an interest rate swap and the yield of a treasury security with the same maturity (known as a default-free rate), in a given currency. Differently stated, the swap spread refers in approximate terms to a market maker’s spread over a specific treasury rate. For example, if a 7-year LIBOR swap is 6% and the yield of a 7-year treasury note is 5%, then the 7-year swap spread is 1%, or 100 basis points. Swap spreads reflect the risk that swap counterparties would default in paying their obligations under the swap. Therefore, swap spreads have a close correlation with credit spreads.