A Non-Quant Guide to Constant Maturity Swaps
A Constant Maturity Swap (CMS) is a floating/floating interest rate swap. In many ways, it is similar to a Basis Swap, in which you agree to pay a notional floating rate based on one reference rate (for example, quarterly BBSW) while receiving a floating rate with a different frequency (for example, semi-annual BBSW). While it is possible to have a cross-currency CMS, we’ll keep it simple here and consider only domestic swaps.
