The International Linkage of Interest Rate Swap Spreads: The Yen-Dollar Markets

25 Pages Posted: 18 Jan 2002

See all articles by Young Ho Eom

Young Ho Eom

Yonsei University

Jun Uno

Waseda University

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance


In this paper, we investigate Japanese yen and U.S. dollar interest rate swap markets during the period 1990-99. We measure the spreads of the swap rates over comparable treasury yields (on Japanese Government Bonds (JGBs) and U.S. Treasury bonds, respectively) for different maturities. We then analyze the relationship between the swap spreads in the two markets.

Our main empirical results are that: (1) the correlations between yen and dollar interest swap spreads are low, indicating that the credit risk factor is country-specific, rather than global in nature, (2) dollar interest rate swaps "Granger-cause" the changes in the spreads of yen interest rate swaps for the long (ten-year) maturities, but the causality does not run the other way, and (3) yen swap spreads are highly correlated with the interest rate differentials between the two markets, and the interest rate differentials have a significant impact on subsequent movements in the yen swap spreads. These empirical results indicate that the specific institutional aspects of the yen fixed income market, such as illiquidity and market frictions, may have affected the yen interest swap rate and the swap spread.

Keywords: interest rate swaps, interest rate swap spreads, relative value, international linkages, credit risk

JEL Classification: G12, G13, G15

Suggested Citation

Eom, Young Ho and Uno, Jun and Subrahmanyam, Marti G., The International Linkage of Interest Rate Swap Spreads: The Yen-Dollar Markets. Available at SSRN: or

Young Ho Eom

Yonsei University ( email )

College of Business and Economics
Seoul 120-749
South Korea
+82 2 361 4193 (Phone)
+82 2 392 0504 (Fax)

Jun Uno

Waseda University ( email )

1-6-1 Nishi-Waseda
Tokyo, 1698050

Marti G. Subrahmanyam (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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