Core Viewpoint - The article emphasizes the importance of yield swaps as a significant financial tool in capital markets, providing risk management and asset allocation services across various markets and products. It aims to enhance understanding of yield swaps among investors by introducing fundamental concepts, applications, and risk characteristics [1]. Summary by Relevant Sections Contract Elements Introduction - Structural elements form the basis of the contract between parties and are essential components of the complete contract system [3]. - Funding elements define the cash flow of the contract, including fixed, floating, and enhanced interest rate payment frequencies and calculation methods [3]. - Transaction elements include basic information agreed upon by both parties at the time of contract signing [3]. - Underlying elements refer to the basic information of the assets linked to the contract, including type, name, code, and quantity [3]. - Lifecycle elements cover the contract's duration from signing to termination, including terms, scale, and cash flow delivery [3]. - Exchange rate elements address situations where transaction, pricing, and settlement currencies differ, with pre-agreed exchange rates [3]. - Performance guarantee elements involve the payment of performance guarantees and related parameters to ensure that the guarantee remains above a certain baseline throughout the transaction, reducing costs and risks [3]. Example of Yield Swap Contract - An example of a yield swap contract linked to stocks on the Hong Kong Stock Exchange is provided, detailing the main elements that would be included in a transaction confirmation document [4]. - The example specifies a long yield swap with a start date of April 8, 2025, and an end date of April 8, 2026, with monthly payment frequency [5]. - Funding elements include a floating interest rate based on the 3-month Hong Kong Interbank Offered Rate (HIBOR), with interest calculated and settled monthly [5]. - Transaction elements specify that the investor pays interest to the dealer, with a unique transaction confirmation number [5]. - Underlying elements include equity-type assets, with a specified stock code and quantity, and provisions for handling cash dividends [5]. - Lifecycle elements outline the dates and amounts related to termination and extension of the transaction [5]. - Exchange rate elements clarify that the transaction and pricing currencies are both Hong Kong dollars, while the settlement currency is Renminbi, with reference exchange rates provided [5]. - Performance guarantee elements include a maintenance line of 50%, with daily market monitoring to manage risks associated with foreign exchange fluctuations [5].