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Derivatives


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Spreadlock


A derivative contract that allows a market participant to enter into an interest rate swap (IRS) at a preset spread over treasuries, usually of identical or similar tenors. In other words, market participants can lock in current spread between an interest rate swap and an underlying bond yield. The buyer (holder) of a spreadlock is obliged to enter into the underlying swap at the maturity date of the spreadlock.

There are two principal types of spreadlocks: option-based spreadlocks (option spreadlocks) or forward-based spreadlocks (forward spreadlocks).


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