DEFINITION of 'Quality Spread Differential  QSD'
In an interest rate swap, the difference between the interest rates of debt obligations offered by two parties of different creditworthiness that engage in the swap. A swap transaction is considered beneficial to both parties only when the QSD is positive.
INVESTOPEDIA EXPLAINS 'Quality Spread Differential  QSD'
For example, suppose ABC Corp can borrow debt at a fixed rate of 10.75% or at a floating rate of LIBOR. And let's say that XYZ Corp. can borrow debt at a fixed rate of 10% or at a floating rate of LIBOR 0.25%. The fixed rate differential would be 0.75% and the floating rate differential would be 0.25%. The QSD would be 0.5%.
Since the QSD is positive, both companies would benefit from entering into a swap transaction.
RELATED TERMS

LIBOR
LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ... 
Credit Rating
An assessment of the credit worthiness of a borrower in general ... 
Variance Swap
A type of volatility swap where the payout is linear to variance ... 
Interest Rate Swap
An agreement between two parties (known as counterparties) where ... 
Credit Default Swap  CDS
A swap designed to transfer the credit exposure of fixed income ... 
Swap Spread
1. The difference between the negotiated and fixed rate of a ...
RELATED FAQS

How are swap agreements financed?
Since swap agreements involve the exchange of future cash flows and are initially set at zero, there is no real financing ... Read Full Answer >> 
What are the risks involved with swaps?
The main risks associated with interest rate swaps, which are the most common type of swap, are interest rate risk and counterparty ... Read Full Answer >> 
What are interest rate swaps on the OTC market?
Interest rate swaps are agreements where counter parties agree to exchange interest rate cash flows based upon the difference ... Read Full Answer >> 
What are the Securities and Exchange Commission regulations regarding swaps?
The U.S. Securities and Exchange Commission (SEC) was granted the authority to regulate securitybased swaps (SBS) by Title ... Read Full Answer >> 
What would motivate an entity to enter into a swap agreement?
The main purpose of swap agreements is to swap cash flows between counterparties for a certain market or asset. Generally, ... Read Full Answer >> 
Can individual investors profit from interest rate swaps?
Interest rate swaps normally take place between two business entities, but individual investors can still use them to speculate ... Read Full Answer >>
Related Articles

Options & Futures
A Primer On The Forex Market
Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers. 
Active Trading
How Companies Use Derivatives To Hedge Risk
Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices. 
Options & Futures
Bond Spreads: A Leading Indicator For Forex
Here we examine some telling patterns in the relation between countries' interest rates and their currency pairs. 
Economics
Effects of OIS Discounting for Derivative Traders
The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss. 
Investing
How Swaptions Can Reduce Risk in Portfolios
How can investing in Swaptions reduce risk in portfolios. 
Stock Analysis
Find The Right Discount Rate Amid Post2007 Risks
OIS discounting has become part of standard valuation techniques, in a market in which there is more uncertainty and less proxies for the riskfree rate. 
Investing
What Warren Buffet Calls "Weapons of Mass Destruction": Understanding the Swap Industry
A full analysis of how the swap industry works. 
Investing Basics
How Are Interest Rate Swaps Valued?
When trading in financial markets, higher returns are generally associated with higher risk. Hedge your risk with interest rate swaps. 
Investing
Simple Interest
Simple interest is a quick method of calculating the interest charged on a loan. Simple interest is determined by multiplying the interest rate by the principal by the number of periods. 
Investing
What's an Interest Rate Swap?
An interest rate swap is an exchange of future interest receipts. Essentially, one stream of future interest payments is exchanged for another, based on a specified principal amount.