It stands for target redemption swap: a swap– or virtually a series of forward contracts– whereby the agreement terminates when the total sum of the positive parts of the cash flows exceeds a pre-determined barrier level. In other words, a firm, party to a target redemption swap, would need to pay a floating interest rate until the cumulative total interest received reaches a set level. Beyond that level, the firm will pay a fixed interest rate.

This swap provides a partial hedge against rising interest rates.