An ABC Corporate issue trades at a bid price of 120 bps over the 5-year US Treasury

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An ABC Corporate issue trades at a bid price of 120 bps over the 5-year US Treasury yield of 6.00% at a time when Libor is 5.70%. At the same time, 5-year Libor-based swap spreads equal 100 bps (to the 5-year US Treasury).

A . If a manager purchased the ABC Corporate issue and entered into a swap to pay fi xed and receive fl oating, what spread over Libor is realized until the fi rst swap reset date?
B . Why would a total return manager buy the issue and then enter into a swap to pay fi xed and receive fl oating?

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Fixed Income Analysis

ISBN: 9788126563128

3rd Edition

Authors: Barbara S. Petitt, Jerald E. Pinto, Wendy L. Pirie, Bob Kopprasch

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