Circus Swap

What Is a Circus Swap?

A circus swap is a common forex strategy that involves the combination of an interest rate swap and a currency swap in which a fixed-rate loan in one currency is swapped for a floating-rate loan in another currency. A circus swap thus converts not just the basis of the interest rate liability, but also the currency side of this liability. The term is derived from the acronym CIRCUS, which stands for Combined Interest Rate and Currency Swap. This transaction is an example of a cross-currency swap or currency coupon swap.

Key Takeaways

  • A circus swap integrates both a plain vanilla interest rate swap with a currency swap into the same contract.
  • CIRCUS stands for Combined Interest Rate and Currency Swap, and trades over-the-counter (OTC).
  • These swaps are used as hedges by international corporations, allowing them to lock in an exchange rate on a set amount of currency with a benchmarked interest rate.

Understanding Circus Swaps

Companies and institutions use circus swaps to hedge currency and interest rate risk, and to match cash flows from assets and liabilities. They are ideal for hedging loan transactions since the swap terms can be tailored to perfectly match the underlying loan parameters. The transactions typically involve three parties—two counterparties who enter into the deal and the institution, most often a bank, that facilitates it.

Multinational corporations use these instruments to make bets and hedges, especially using currencies that don't have a robust swap market. These are transactions with two primary moving parts to consider—currency fluctuation and interest rate movements. But there's even more in motion when you take into account movement in both currencies, LIBOR movement, as well as interest rate swings in both countries.

Banks that typically facilitate these transactions charge a commission, usually around 100 basis points or 1% of the deal. Note that the floating rate used in a circus swap is generally indexed to the London Interbank Offered Rate (LIBOR).

According to an announcement by the Federal Reserve in November 2020, LIBOR is in the process of being phased out and will be replaced by SOFR (Secured Overnight Funding Rate) as of June 2023. Banks were instructed to stop writing contracts using LIBOR after Dec. 31, 2021. The Intercontinental Exchange, the authority responsible for LIBOR, stopped publishing one-week and two-month LIBOR after Dec. 31, 2021. All contracts using LIBOR must be wrapped up by June 30, 2023.

Example of a Circus Swap High Wire

As an example, consider XYZ PLC, a European company that has a $100 million loan with a floating interest rate (LIBOR + 2%) on its books. The company is concerned that U.S. interest rates may begin to rise, which would lead to a stronger U.S. dollar against the euro, making it more expensive to make future interest and principal repayments.

XYZ would thus like to swap into a fixed-rate loan in Japanese yen, because interest rates in Japan are low and the company believes the yen may depreciate against the euro. It thus enters into a circus swap with a counter-party that converts its U.S. dollar floating-rate debt into a fixed-rate loan in Japanese yen.

If the company’s views on future interest rates and currencies are correct, it can save a few million dollars on servicing its debt obligations over the term of the loan.


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  1. Federal Reserve. "Federal Reserve Board welcomes and supports release of proposal and supervisory statements that would enable clear end date for U.S. Dollar (USD) LIBOR and would promote the safety and soundness of the financial system."

  2. Intercontinental Exchange. "LIBOR®."

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