TRS

[jcjc0602]

Hi everyone,

For a Total return swap, if the underlying is a bond, is the swap payer required to pay the coupon of the bond as well besides the price change of the bond? Thanks!

 

[rickm123]

yes hence total---return and coupon..convertible bond as the underlying TRS are common

 

[ShaktiRathore]

In a total return swap the swap payer pays all the income and cash generated from the reference asset and receives some variable or a fixed rate in exchange. The swap receiver virtually becomes the owner of the referenced asset and bears the risks associated with the asset.
So in a Bond the swap payer is required to pay all the coupons and capital gains(price change) associated with the bond.

thanks