Swap Rate Curves

CFA Level II Fixed Income
#1

I read that swap rate curves are not subject to sovereign credit risk. It is determined by dollar denominated borrowing based on LIBOR. What does this mean? I really don’t get exactly what the swap rate curve is supposed to represent- credit risk right? But how so?

For context- I think I understand the Ted spread: price difference between US Tresury and Eurodollars contracts…this makes sense since this is clearly comapring a risk-free asset to a risky one…so that one represent corporate borrower’s credit risk right? And then the Libor OIS represent banks’ credit risk because that is the spread of dollar borrowing (Eurodllars) over the interbank ledning rate of LIBOR…so these 2 make sense to me but I don’t get what a high swap spread would represent…

#2

…follow up-

can the swap rate curve be thought of as another risk-free rate in a country? I think of the Tresury rate as the risk-free rate…can the swap rate be thought of similarly? Based on the logic that that is the rate we’d require if we have long-term liabilities and wanted to hedge?

#3

The swap rate curve is a risk-free rate, but it isn’t associated with a country; therefore, no country’s sovereign risk affects the swap rates.

#4

What would the 10-year swap spread represent? I read it captures differing demand/supply conditions but don’t really get this. I do now understand why the swap curve is just another risk-free rate…