MORGAN STANLEY FIXED INCOME RESEARCH See additional important disclosures at the end of this report. 2 May 11, 2006 Using and Trading Asset Swaps Interest Rate Strategy Introduction An asset swap is an agreement to swap the form of the stream of future cash flows or benefits generated by an asset, typically from fixed to a market based floating rate such as Libor. Asset swapping is common by investors, as is liability swapping by issuers. The buyer of a bond may prefer floating cash flows as a match for expected future liabilities, for exam
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