Swap spreads, which measure the difference between 10-year swap rates and 10-year Treasuries, have fallen to their lowest level since before the credit crisis began to break last July, with the 10-year swap spread today at its narrowest since June 4, 2007.
Why is this important? Because when swap spreads narrow, it indicates that debtors would rather swap out of fixed-rate debt obligations into floating-rate debt obligations, a sign that they are less worried than before regarding the possibility that credit spreads will widen as a result of worries about credit and the economy.
Today, the 10-year swap spread is trading at 57.2 basis points, down 1.2 basis points on the day and well below the peak of 91.3 basis points on March 6.
The swap rate is one of many key indicators indicating a calming of worries about the credit situation. Given the size of the swap market -- several hundred trillion dollars -- this particular indicator is sending an important signal.
Tony Crescenzi Blog Biz Loans Flat 5/19/2008 10:44 AM EDT There was mostly good news in this week's data.
Tony Crescenzi Blog The Week Ahead 5/19/2008 9:21 AM EDT The markets will be moved by weekly data rather than the meager economic calendar.
Tony Crescenzi Blog Shipping Rates at a Record 5/16/2008 2:10 PM EDT The all-time high in shipping costs is feeding into inflation expectations.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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