Interest rate swaps are customizable, allowing an issuer to match the terms of a swap to the commonly used serial bond structure.
A swap is an exchange of interest payments based on a set amount of principal, also known as the notional amount, which is not exchanged. On a typical swap, the notional amount is fixed for the life of the swap. An issuer, for example, might agree to pay its swap counterparty a fixed rate of 5.50% on a notional amount of $100 million. In return, the counterparty agrees to pay the issuer a rate based on the Public Securities Association's municipal swap index on an identical notional amount for the same term.