Rates Market Update: US spreads hit four-year low

Lower-than-expected tax receipts in the US this April – traditionally the main month for tax returns – led to expectations that the government will step up its bond issuance to make up its budget shortfall. This led to more floating receivers entering the market, grinding swap spreads narrower.

Euro interest rate swaps saw strong activity due to increased bond issuance. Ten-year spreads ended the week about 1.5bp tighter on a par asset-swap basis over Euribor at 21.4bp.

A trader at Morgan Stanley, based in London, who asked to remain unnamed, said swaps activity was a result of more issuers entering the market to take advantage of the steep yield curve. “All of the [bond] deals this week were swapped - at least 99%.”

The biggest issue was a €6 billion, 11-year bond by the Finnish government, the majority of which was swapped, dealers claimed.

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