The return of steepeners

With constant maturity swap spreads at historical lows, most investors believe that the flattening curve cycle of the past three years has come to an end. As a result, private banks and retail distributors in Asia are snapping up a new wave of highly leveraged CMS spread steepeners. But how risky are they? Amanda Lee reports

Enthusiasm for constant maturity swap steepeners (see box page 22) waned following the losses incurred last year, when the US dollar yield curve flattened to the point of inversion. On closer inspection, however, in addition to tranches of constant maturity swap (CMS) spread range-accrural notes, estimates suggest that between $2 billion and $3 billion of highly leveraged structures linked to CMS