Selling Interest Rate Swaps

Question

Suppose two parties have entered into an interest rate swap. Would it be possible for one party to sell their portion of the contract to another party? Or would that party have to enter into an offsetting swap?

Answer 1

There are several ways to exit a swap agreement:

• Buy out the counter party either though pre-arranged terms in the swap or by negotiating acceptable terms to both parties

• Sell the swap to third a third party (requires the initial conter party's consent)

• Enter an offsetting swap

• If it exists, purchase a swaption to mitigate the risk of the swap