Swap tenor is the average length of a swap. Normally, the farther the tenor of a swap, the riskier it gets. In the early days of swaps, tenors ranged from five to seven years, on average. As the swap markets mature over time, tenors tend to decrease, in realization, by both companies and regulators, of the substantial risks involved in long-tenor agreements. Few players might be interested in going out for 30 year tenors. Although very long tenors (such as 20 or 30 years) were not transacted in the early days of swaps, swaps with 10-year tenors were carried out with no much thought.

Today, regulators impose restrictions and conditions on institutions and investors willing to tap the swap markets. For example, a company will need to have an excellent credit rating (AA at least) in order to be a counterparty to a swap. In recent times, most interest rate swaps have a tenor not exceeding seven years, with the majority of swaps having maturities of less than five years.

A swap tenor may also refer to a swap’s coupon frequency. In practice, these tenors are often less than a year. A common tenor is three months. So instead of exchanging cash flows once a year, the counterparties do so four times per year, and so on. Other popular tenors are six months and one month. Another common arrangement is the semi-quarterly coupon frequency in which the swap has a 6-month fixed leg and 3-month floating leg. Whatever the frequency is, the two legs of a swap need not have the same tenor.