A constant maturity swap is a type of interest rate swap. In this type of swap, there is a fixed interest portion and a floating interest portion that is reset periodically against a fixed financial instrument rate, such as a Treasury Bill or government bond rate. The constant maturity rate swap period is longer than the yield on the financial instrument that the swap is reset to. For this reason, investors are vulnerable to market changes for a longer period of time. Common investors interested in constant maturity swaps include large corporations and financial institutions looking for higher yields and diversified funding and life insurance companies looking to cover long-range insurance payouts.

Constant maturity rate swaps differ from standard interest rate swaps in how the investment return is calculated. Unlike a standard interest rate swap, the floating leg of a constant maturity swap is periodically reset against a fixed instrument rate, such as a bond or stock. In a standard interest rate swap, the floating leg is fixed against another interest rate, usually the London Interbank Offered Rate (LIBOR).

An investor may choose a constant maturity swap if he feels the LIBOR will fall relative to a swap rate of a certain currency over a set period of time. In this case, the investor would then buy a constant maturity swap by purchasing the LIBOR and in turn receive the swap rate for the set period. For example, the investor may purchase a six-month LIBOR to receive the three-year swap rate. This is basically a long-term bet that the swap rate will be higher then the LIBOR rate at the end of the investment period, thus yielding the investor a higher return. This type of swap is not ideal for all investors and may be considered a bit risky due to fluctuating interest rates.

Inexperienced investors are not generally advised to participate in this sort of investment betting, or hedging. The nature of constant maturity swaps allows for unlimited loss — if the LIBOR is higher than the purchased instrument at the end of the term, the investor loses the difference, no matter how high it may be. New investors who may not understand all the complex aspects of a constant maturity swap could ultimately lose a lot of money. Another disadvantage of purchasing a constant maturity is that it requires documentation from the International Swaps and Derivatives Association (ISDA), which can be expensive and time consuming.