Spreadlock
Definition of 'Spreadlock'An agreement that establishes a predetermined spread for future interest rate swaps. A spreadlock is a credit derivative created as either a forward contract or an option. With a spreadlock, an investor can lock in a current spread between a swap and an underlying government bond yield and transfer the basis points forward to the time when the swap is entered into. |
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Investopedia explains 'Spreadlock'Spreadlocks have been an option for certain investors since the 1980s. A forward spreadlock allows for a definitive addition of a set number of basis points on top of the existing spread in the underlying swap. With a spreadlock through an option contract, the buyer of the contract can decide whether or not to make the swap effective. |
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