Understanding Yield Curves: Swap, FX Forward, and Credit Default Swap Curves
In our previous post, we broke down the foundational types of yield curves (global, corporate, and municipal). These curves are rooted in cash bond markets and give investors a direct read on borrowing costs across issuers, sectors, and maturities.
But cash bonds only tell part of the story. Sitting alongside them is a parallel universe of yield curve data derived from derivative and forward instruments, curves that capture interest rate expectations, credit risk, and currency dynamics in ways that bond-based curves simply can't. For derivatives desks, risk teams, and portfolio managers navigating global markets, these are indispensable.
This post picks up where Part 1 left off. We'll walk through four curve types that round out the picture: quoted swap curves, swap-implied curves, FX forward curves, and credit default swap curves, covering what each one tells you, why it matters, and how SQX sources and delivers them.
Quoted Swap Curves
A quoted swap rate curve is built directly from interest rate swap quotes contributed by dealer banks—the bid and ask levels they're willing to transact at across tenors from short-dated maturities out to 30 years or more.
What makes these curves valuable is their directness. Instead of being modeled or interpolated from other instruments, they reflect actual executable levels in the interbank swap market. That's a meaningful distinction. If you're pricing a new swap, marking an existing book, or stress-testing your own yield curve construction against real-world levels, quoted interest rate swap data is the benchmark you measure against.
SQX's Quoted Swap Curves
SQX builds its quoted swap curves from quotes sourced directly from top-tier global dealer banks—not aggregated from third-party platforms. Every curve passes through a multi-layered validation process that includes completeness checks, consistency checks, kink removal, gap filling, and curve shape verification. The result is clean, trade-ready swap rate data with bid and ask yields across a wide range of global currencies, available end-of-day or intraday.
Swap-Implied Curves
If quoted swap curves show you where the market trades, swap-implied curves show you what's embedded underneath. These are zero-coupon yield curves and discount factors extracted—or "bootstrapped"—from the most liquid traded instruments, often anchored to the overnight index swap curve (OIS).
Bootstrapping, in plain terms, is the process of reverse-engineering individual zero-coupon rates from the prices of instruments that mature at different points in time. The result is a smooth, continuous discount curve—a single, coherent framework for valuing any future cash flow. In most major currencies, the OIS curve has become the standard foundation for this process, replacing the older LIBOR-based approach that dominated pre-2008.
Why does this matter day-to-day? Because nearly every derivatives valuation—from a vanilla interest rate swap to a complex structured note—depends on a reliable discount curve. The zero-coupon yield curve and its associated discount factors are the quiet infrastructure that makes modern pricing work.
How SQX Builds the Discount Curve
SQX derives its swap-implied curves from the most liquid observable instruments using OIS-based construction where applicable, following industry-standard bootstrapping methodology to produce smooth, arbitrage-free results. Coverage spans 33+ currencies, from the majors (USD, EUR, GBP, JPY, AUD, CHF) to a broad set of emerging-market currencies. Data is available intraday or end-of-day, with up to 5 years of historical data for backtesting and trend analysis.
FX Forward Curves
An FX forward curve maps the price of exchanging one currency for another at future dates, built from spot exchange rates and the FX forward points layered on top of them across tenors. It's tempting to read these as the market's forecast of where a currency pair is headed. But more precisely, the FX forward rate at each tenor reflects the interest rate differential between the two currencies, an arbitrage relationship rather than a directional bet.
That distinction aside, FX forward data is mission-critical for anyone managing cross-border exposure. Whether you're hedging receivables in a foreign currency, valuing a cross-currency swap, or running a multi-currency portfolio, the currency forward curve is a core input. And because forward points shift with rate expectations and liquidity conditions, stale or poorly validated data can quietly introduce real pricing risk.
How SQX Delivers FX Forward Data
SQX sources its FX forward curves from real-time, dealer-contributed quotes (not delayed composites) and applies rigorous validation including outlier detection and freshness checks to ensure every data point reflects current market conditions. Coverage spans FX spot and forward curves across a wide range of global currency pairs, with intraday or end-of-day delivery and up to 10 years of historical data.
Credit Default Swap Curves
A CDS spread curve plots the term structure of credit default swap spreads for a given reference entity—like a major bank, a sovereign issuer, or a high-yield corporate. At each tenor, the credit default swap spread represents the annual cost of buying protection against that entity's default. A steeper curve implies the market sees more risk further out; an inverted curve can signal near-term distress.
What makes credit default swap pricing particularly powerful is speed. CDS spreads tend to react to new information faster than bond spreads shift or rating agencies act. When credit conditions are evolving quickly—a leveraged buyout announcement, a sovereign debt renegotiation, rising sector-wide stress—the CDS spread curve is often the first place the market's reassessment shows up.
SQX's CDS Curves
SQX’s
CDS curves cover 2,000+ reference entities and popular CDS indices across a wide range of currency, restructuring clause, and tier of debt combinations. Curves are built from real dealer quotes, not indicative marks, and cleaned for outliers and stale data. A proprietary composite methodology averages validated spreads into consensus CDS spread data. Unusual features like curve inversions undergo manual review to ensure accuracy rather than getting smoothed away by an algorithm. Daily delivery is standard, with up to 10 years of historical data available.
The Full Picture
Between the cash-bond curves in Part 1 (global, corporate, and municipal) and the four derivatives-based curves covered here, SQX's yield curve suite spans the full landscape: sovereign and credit markets, interest rate swaps, FX forwards, and credit derivatives. Seven distinct types of yield curves, each purpose-built for a different corner of fixed income and derivatives.
The common thread across all of them is how they're built. Every curve in the suite reflects the same principles: transparent yield curve construction, rigorous validation, dealer-sourced inputs, competitive pricing, and a team that picks up the phone. Whether you need a single swap rate curve for USD or credit default swap data across thousands of global entities, SQX delivers clean, validated, ready-to-integrate yield curve data. To learn more about SQX's yield curve coverage, contact us!
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