Modelling South African swap spreads

Even though domestic swap spreads are stretched several standard deviations above historical three- and seven-year means, these spreads exhibit a statistically viable upward trend. Nevertheless, some moderation in the 10-year spread is expected over the short to medium term

In welcome contrast to the domestic corporate bond and (nonvanilla) derivatives market, the South African swap market – like its offshore counterparts – is highly liquid. Although the exponential growth in swap trading volumes of the 1994–2002 period slipped slightly from 2002 to 2005,1 according to the South African Reserve Bank, domestic swap turnover in nominal terms amounted to R2.5 billion in 2006, up from R1.9 billion in 2005. To July 2007, nominal swap turnover stands at R2.05 billion