An amortizing swap in which the notional principal amortizes at a faster pace as interest rates increase. This type of swap is used primarily in conjunction with mortgage derivatives to adjust and re-balance the so-called extension risk associated with some mortgages products in an episode of increasing interest rate. It allows the party receiving fixed rate to roll over at higher interest rates.
A bear swap could also refer to a basis swap in which the two interest payment legs are based on two different reference index rates, one with the higher credit quality and the other with the lower credit quality. For example, a bear swap may have its higher credit quality leg based on treasury debt index, while having the lower credit quality leg based on corporate debt or even a junk bond index.
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