Rates Spark: Swap Spreads On The Move In Opposite Directions

2025-02-14 03:30:00 ET

Summary

• The spread between UST and swap rates has narrowed significantly since January, but Bund-swap spreads showed little correlation with the moves.
• This is in contrast to broad patterns observed before: Since 2023, the direction of swap spreads have moved in the same direction.
• Meanwhile, Treasury yields have found a way to block out Wednesday's CPI reading, implicitly balking at the notion of shooting higher, at least for now.

By Michiel Tukker , Benjamin Schroeder , Padhraic Garvey, CFA

UST-swap spreads tightening might not mean much for the eurozone

Whilst the gap between UST yields and SOFR swap rates has narrowed significantly since January, the Bund-swap spread has been moving in the opposite direction. This is in contrast to broad patterns observed before: Since 2023, the direction of swap spreads have moved in the same direction, whereby the ongoing quantitative tightening programmes of the European Central Bank and Fed together added to the supply pressures of government bonds....

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