Swap Spreads

Anyone have an idea why 10yr swap spreads have traded down close to 0 the last few weeks? Intuitively, that doesnt make sense!

Because 30 year swap spreads have been negative? The world is all messed up out there.

unwinding of ARM MBS/ABS?

swap spreads tend to go nuts during crises. not credible benchmarks anymore.

Up here in Canada all our swap spreads are negative right now. I’ve been looking for a decent explanation on the reasoning, but haven’t been able to find anything.

i am still convinced this is a complete unwind of trades… anything you heard of hedge funds/prop desk/CTAs doing, is getting crushed… yen carry trade, commodity bets, etc, are just getting crushed… .this is because a) HF getting redemptions and b) PB’s are limiting exposure to HF’s … this is the unwinding of trillions of dollars in a matter of a year or so when it was built over 3-4 years

Maybe it is Instos selling long dated govies so they can hoard cash? Possibly pricing in higher bond issuance and higher default probability of govts.

i started a thread on this a couple of weeks ago. Theres a bunch of reasons. 10/30 structured inversion notes going sour, Lehman going out of business, leaving their swap counterparties with no other side, balance sheet destruction making derivatives a more viable vehicle than cash bonds etc etc etc. Does it make sense? hell no. Am I standing in front of the train. hell no.

Tell me if I’m interpreting this correctly. If swap spreads are negative, the implication is that people are saying its safer to be in a private party swap transaction than in a government bond?

Just as PPP doesn’t hold in the long term that interpretation ignores too much micro-finance. There is borrowing/lending inherent in swaps, with an upward yield curve the fixed payer is lending in the short-run (i.e. paying more than floating rates). Would have to have my morning coffee and look at the bid/ask spread to proceed further with this line of thought. Also, when LEH went bust various swap markets went haywire. The replacement trades sucked up a lot of the swap liquidity and moved yields, but the counterparties were able to pass market costs onto LEH. Bonds are physicals, they have their own supply and demand considerations. Reasons they are being sold include the anticipation of a large supply and you get cash when you sell them, and cash is king.