A basis swap in which both parties pay a floating rate, but based on two different indexes. For example, one party’s payment might be based on a three-month treasury-bill rate, whereas the other party’s payment might be based on a 30-year bellwether bond. The steepness of the interest yield curve determines the party benefiting from the swap. For a flat yield curve, in a normal market (long term rates exceed short term rates), the party paying the long term rate would be in a favorable position. On the contrary, in the case of a steep yield curve, in the same normal market, the party paying the short term rate would be at an advantage. Examples of a yield curve swap include CMS swaps and quanto swaps.

This swap is sometimes referred to as a yield curve arbitrage swap.