A Strategy to Obtain the Best Price for an Interest Rate Swap from Banks

Abstract

When searching for the best swap rate, companies
should – and do – ask a number of their corresponding banks for
price quotes. We caveat that as more banks are approached for
quotes the traders begin simultaneous hedging estimations that
create market chatter. This chatter amplifies the impression that
many similar trades are being priced or that a very large deal is
pending and results in market movement against the company.
We propose a practical solution that considers the liquidity of
Eurodollar futures together with the notional amount of the swap
to judge the approximate number of banks that should be
approached for a quote.