Australian and US interest rate swap markets: comparison and linkages

Authors: In F.¹; Fang V.¹; Brown R.²

Source: Accounting and Finance, Volume 44, Number 1, March 2004 , pp. 45-56(12)

Publisher: Blackwell Publishing

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Abstract:

We investigate and compare the determinants of US and Australian interest rate swap spreads and the linkages between these markets. The slope of the risk-free term structure is the most significant determinant and its importance is greater for longer terms to maturity. Interest rate levels and, in Australia, the default premium also have some impact. The influences of interest rate volatility, the liquidity premium and (in the USA) the default premium are small or negligible. We hypothesise, and our evidence confirms, that the US swap market significantly affects the Australian swap market but not vice-versa.

Keywords: Swap spread; International linkages; Comparison and linkages

Document Type: Research article

DOI: 10.1111/j.1467-629x.2004.00098.x

Affiliations: 1: Monash University, Melbourne, Australia 2: University of Melbourne, Australia

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