What does Asset Swap mean?
Asset Swap is an exchange of two typed of assets such as a swap between a Treasury Bond and an Index fund. While a Treasury Bond has fixed and guaranteed payments, an Index Fund does not have fixed or guaranteed income. Here fixed and floating investments have been exchanged to achieve a more favorable payment stream.
Futures Knowledge Explains Asset Swap
An Asset Swap is used to convert the cash flows from fixed coupon to floating coupon, or from one currency to another. The underlying security and swap may be transacted together as a package with the same counterparty or separately with different counterparts.