A new survey from Citigroup Inc (NYSE: C) predicts that ten-year swap spreads will remain between 0% and 0.1% during the next three months.
A swap spread is the difference between the rate to exchange fixed- for -floating interest payments for 10 years and similar-maturity U.S. note. The swap spread remained low at -2.88%. A negative spread means that investors will receive better results on a 10-year than when paying floating rates to receive the fixed rate on the swap even though the contracts are seen as having more risk.
Companies looking to lock in low borrowing costs are putting pressure on swap rates. Mortgage services providers such as Freddie Mac and Fannie Mae have not been in the market, removing a primary cause of wider spreads, said said Christian Cooper, an interest-rate strategist in New York at Royal Bank of Canada, one of 18 primary dealers that trade with the Federal Reserve to Business Week.
“The whole dynamic of the market has changed,” Cooper said. “It can persist for a very long time.”
Ten-year swap spreads went below 0 on March 23 for the first time based on speculation that demand from mortgage servicers to hedge would decline as the Federal Reserve completed the purchase of $1.25 trillion of agency mortgage bonds.
