What do market to market swaps (MTMs) involve?

Market to market swaps (MTMs) specifically involve payments that reflect the change in market value of the underlying asset since the last settlement. This means that at each settlement date, the parties involved in the swap will calculate the current market value of the swap positions and either pay or receive the difference. This process helps ensure that the swap's value remains updated in accordance with current market conditions.

This mechanism allows for the gains or losses to be realized in cash, rather than merely on paper, which is critical for both parties to manage their financial exposure and liquidity needs effectively. The focus on actual market value changes is key, as it helps in tracking the performance of the swap and ensures that both parties are compensated or charged for the market volatility affecting the underlying assets involved in the swap.