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(1) An interest rate swap agreement that amortizes more rapidly as interest rates rise, allowing the fixed rate receiver to 'reinvest' at higher rates. These instruments are used principally in conjunction with mortgage derivatives to balance the extension risk of many mortgage instruments in a period of rising rates. (2) A basis swap with both swap streams based on index rates characterized by different credit qualities; for example, a TED spread swap or a Treasury/junk bond index swap. Typically, the lower quality rate will rise most rapidly as all rates rise.
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