Grim Fandango! U.S. 2-Year Swap Spread Turns Negative (First Time Ever!!)

As central banks like the US Federal Reserve try to counter a sagging global economy (and preserve asset bubbles), strange things begin to happen. Like the US 2-year swap spread going negative for the first time ever!

(Bloomberg) — The U.S. 2-year swap rate moved below the 2-year Treasury note’s yield for the first time ever Tuesday after 3-month dollar Libor’s latest drop, turning the 2-year swap spread negative. It was the last tenor on the swap spread curve to fall below zero.

Currently around -0.25bp, 2-year spreads dropped as low as -0.5bp, tighter on the day by 1bp; spread is tighter by ~12.5bp since the start of May

  • 3-month dollar Libor fixed lower by 2.16bp at 2.31125 Tuesday, lowest since August 2018
  • A combination of higher general collateral rates, overseas selling and hedging flows have weighed on front-end spreads over the past couple of months;

2yssp

Here is the US Dollar Swap Curve and the Swap Spread curve.

swapsccc

Is this a Grim Fandango?

grim-fandango