Could someone explain swap spreads to me? Or point me to an article or book that would? I just want to know why "narrowing swap spreads" mean people are buying lots of corporate bonds. I mean, I think I know what a dollar swap is. But maybe not because I'm missing the causal connection that swap spread narrowing is caused by increased buying of corporate bonds.
These are the paragraphs in the FT that puzzled me:
<quote>
Dollar swap spreads, the direction of which is a gauge of investor sentiment towards corporate bonds, have narrowed in recent weeks as markets increasingly view the US interest rate cycle as having peaked.
This move in swap spreads, reversing a period of rapid widening, has made investors more confident about increasing their exposure to riskier investments. Corporate bond issuance has increased sharply as a result.
In the euro-zone markets, in contrast swap spreads continue to drift in the opposite direction. Most forecasts are for further widening . . .
<end quote)
Also when people refer to "the" dollar swap spread raising from 70 basis points to 120, what benchmark are they referring to?
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com