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.
Next Up
BREAKING DOWN '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

Bond Market Association (BMA) Swap
A type of swap arrangement in which two parties agree to exchange ... 
Swap Curve
A swap curve identifies the relationship between swap rates at ... 
Delayed Rate Setting Swap
An exchange of cash flows, one of which is based on a fixed interest ... 
Interest Rate Swap
An agreement between two parties (known as counterparties) where ... 
Inflation Swap
An inflation swap is a transaction in which two parties exchange ... 
Basis Rate Swap
A basis rate swap is a type of swap in which two parties swap ...
Related Articles

Trading
Different Types of Swaps
Investopedia explores the most common types of swap contracts. 
Trading
An Introduction To Swaps
Learn how these derivatives work and how companies can benefit from them. 
Trading
Interest Rate Swaps Explained
Plain interest rate swaps that enable the parties involved to exchange fixed and floating cash flows. 
Trading
Currency Swap Basics
Find out what makes currency swaps unique and slightly more complicated than other types of swaps. 
Investing
The Advantages Of Bond Swapping
This technique can add diversity to your portfolio and lower your taxes. Find out how. 
Trading
Introduction To Counterparty Risk
Unlike a funded loan, the exposure from a credit derivative is complicated. Find out everything you need to know about counterparty risk. 
Trading
Derivatives 101
A derivative investment is one in which the investor does not own the underlying asset, but instead bets on the assetâ€™s price movement with another party. 
Investing
Santander, Portugal Reach Swaps Settlement (
Interest rate swap agreements will cost Portugal $1.8 billion and help Santander get some new loans on its books. 
Investing
Understanding Total Return Swaps
A total return swap is a contract in which a payer and receiver exchange the credit risk and market risk of an underlying asset. 
Trading
5 Equity Derivatives And How They Work
These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in.
RELATED FAQS

What are interest rate swaps on the OTC market?
Learn about interest rate swaps and how they are traded over the counter, and understand the impact of DoddFrank on swaps ... Read Answer >> 
Can individual investors profit from interest rate swaps?
Find out how individual investors can speculate on interest rate movements through interest rate swaps by trading fixed rate ... Read Answer >> 
Do interest rate swaps trade on the open market?
Learn how interest rate swaps are traded on the OTC and interbank markets, and how these swaps can be used to arbitrage different ... Read Answer >> 
What would motivate an entity to enter into a swap agreement?
Learn why parties enter into swap agreements to hedge their risks, and understand how the different legs of a swap agreement ... Read Answer >> 
What is the difference between derivatives and swaps?
Find out more about derivative securities, swaps, examples of derivatives and swaps, and the main difference between derivative ... Read Answer >>