Dollar Swaps Face Biggest Collapse Since Fed 2011 Liquidity Plan
- Big move in front-end swap spreads as Treasury selloff extends
- Thinning liquidity in Treasuries market tests March 2020 highs
This article is for subscribers only.
The drop in front-end US dollar swap spreads is poised to be the biggest since 2011, when the Federal Reserve announced coordinated central bank plans to boost liquidity by lowering interest rates on dollar swap lines.
The spread between the two- and three-year dollar swap rate and the comparable Treasuries dropped as much as 8 basis points on Monday as the global selloff in government bonds deepened. The equivalent SOFR swap spread -- referencing the secured overnight financing rate -- also fell up to 8 basis points on Monday, the biggest drop on record in Bloomberg data back to October 2020.