Zero Basis Risk Swap (ZEBRA)

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Definition: Zero Basis Risk Swap (ZEBRA)

An interest rate swap agreement between a financial intermediary and a municipality is known as the Zero basis risk Swap. In practice, a municipal stock is being traded for different financial securities.

It is also referred to as the “perfect swap”.

Under the terms of the swap, the financial intermediary pays a floating rate to the municipality and municipality pays the fixed rate. This floating must be equal to the floating rate on the outstanding floating rate debt which was issued by the municipality.

The use of this instrument is that it makes the municipality’s borrowing costs more stable and predictable and thus reduces the risks.




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