An offshore (cross-border) derivative operation which was originally used by local banks in Mexico as a means of leveraging Tesobono (bond) holdings. By definition, the Tesobono swap is a swap agreement between offshore and Mexican banks, whereby the offshore bank pays Tesobono yields hedged by Tesobono holdings and receives a floating rate (e.g., LIBOR plus and margined collateral. This swap allowed Mexican banks to establish leveraged position financed by short-term U.S dollar from offshore banks. Leveraging positions is principally sought in order to enhance returns on domestic bonds linked to dollar. Functionally, the Tesobono swap places both counterparties in a risk position identical to that associated with a repurchase (repo) agreement.

The Tesobono swap helped local banks circumvent the regulations of the Mexican commission of exchange (Comision National de Valores) that banned holding financial assets on margin.