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U.S. government debt managers face the following dilemma: issuing long-term debt enables them to keep interest costs and rollover risk down but it increases the
U.S. government debt managers face the following dilemma: issuing long-term debt enables them to keep interest costs and rollover risk down but it increases the risk that bond payments will come due when revenues are low. Explain how the U.S. government can enter into an interest-rate swap with a bank to keep interest costs and rollover risk down while reducing the risk that bond payments will come due when revenues are low. In your explanation, please identify who is the floating-rate payer and who is the fixed-rate payer.
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