The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

Capital markets: Swap spreads signal market failure

Negative swap spreads are more than a sign of dysfunction in the interest-rate derivatives market. They are the result of fundamental changes in the structure of the capital markets that have been forced by post-crisis banking regulation.

On October 23, 2008, something strange happened in the swaps market. Given that Lehman had filed for bankruptcy only a month before it was only one of many unthinkable events taking place, but on that day the 30-year swap rate traded below the 30-year treasury rate for the first time. This shouldn’t happen. 

Swap spreads reflect the cost of funding a long treasury position, so negative spreads mean that it costs more to borrow cash for 30 years secured against treasuries than to borrow unsecured for 30 years. It means that lending to the US government is riskier than lending to its banks.

This is clearly nonsense, and back in 2008 it was a sign of how badly broken financial markets were as they fell into a global crisis.

But today there is no global financial crisis. And yet, once again, 30-year swap spreads are negative and have been since late 2014. In an even more remarkable development, swap spreads all along the curve are now in negative territory too.

In mid-November last year Ed Fitzpatrick, head of US rates at JPMorgan Asset Management, observed: “Swap spreads have tightened so aggressively they have defied expectations and some would say logic.”

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree