Swap Spreads

June 30th, 2014 12:01 pm | by John Jansen |

Swap spreads are mixed today. Two year spreads are unchanged while five year spreads are 1/2 basis point tighter. Ten year spreads are 3/4 tighter and bond spreads have narrowed a full basis point.

One market maker said that corporate issuance was aiding the narrowing of spreads. He also thought that there had been some MBS selling last week which got hedged and the lack of paying from any source has spreads grinding tighter.

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  1. One Response to “Swap Spreads”

  2. By Lara on Jul 9, 2014 | Reply

    Hello!
    I just have a quick comment on this. I would really appreciate if you could share your view to help me understand better.

    So if the spreads are tighter than it means there is more supply of that specific treasury, and since the spread between the treasury and its swap is narrowed, it doesn’t make a huge difference to buy the treasury itself or just the swap rate. And it could also mean that there is not much inflow since buying the bond directly from the market costs the same as buying the swap points.

    However, once the spreads increase then there is an opportunity to make a swap deal and inflows are in the horizon to the bond market. But, once the spreads are negative then we can say that there is no carry opportunity for the foreign investor and outflows are possible since the specified bond is saturated or expensive too much and sell offs are in the horizon.

    *spread: I mean the difference between swap and the cash curve of that meaning the designated treasury bond, in the EM context.

    Thanks

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