Determinants of New Taiwan Dollar Interest Rate Swap Spreads

Abstract

This study examines the determinants of New Taiwan Dollar interest rate swap spreads. Prior literature provides evidence that the term structure of interest rates, liquidity, and credit risk comprise the swap spreads. The empirical results for the full sample period show that these factors are all important in affecting the swap spreads and that default risk is the most important factor among the five components. Furthermore, default risk plays a more important role than other factors in a bear market, but the key factor varies with the maturities of swap contracts in a bull market.