Not all margins in the US rate market. UU They are shrinking. In fact, a benchmark measure is expanding almost at the same pace with the Treasury's persistent yield curve.
The 30-year swap differential, which represents the difference between the rate of an interest rate swap and a similar yield. , is the largest since August 2015. It is becoming less and less negative, a legacy of post-crisis financial rules, as a cocktail of possible regulatory forces will weaken the attractiveness of swaps in relation to the long-term government debt. Since the beginning of September, the measure has been a mirror image of the performance curve of the United States.
The expansion of the swap margin further illustrates the insatiable appetite for long-term Treasuries, which recovered on Tuesday. At the same time, operators are raising expectations of Federal Reserve rate hikes next year, pushing up the shorter maturity rates. The US performance curve UU It flattened to a minimum of 10 years on Tuesday, and the signs suggest that the move still has momentum.
The spread spread "remains one of the main businesses," said Glen Capelo, head of rates at Academy Securities. "As the Dodd-Frank regulations are eased, the benefits of using swaps change – this relationship has been directly correlated with the curve."
The 30-year differential, which hit 19.1 basis points on Tuesday, is underway to disappear, Capelo said. That means that exchange rates are widened to equal Treasury yields for that amount, so the difference becomes zero. On average, the gap has been negative 11 basis points since the beginning of 2007 (and reached an unprecedented negative 61 basis points last year), compared to 58 positive base points the previous decade.
Not really  makes sense that exchange rates are lower than those of Treasuries because they contain a credit risk when discounted from London's interbank offer rate. But post-crisis regulations make it more costly for grantees to maintain government debt.
The election victory of Donald Trump caused much of the rebound in the last year, given his promises to ease the regulatory burden on Wall Street.
If the recent trend between the swap differential and the Treasury curve continues, there may be a greater flattening for the world's largest bond market.