Treasury Swap Spread Smallest Since 1988 as Greece Creates Plan

Treasury Swap Spread Smallest Since 1988 as Greece Creates Plan March 3 (Bloomberg) -- The U.S. interest-rate swap spread narrowed to the smallest since 1988 as Greece prepared to unveil measures State Flags to cut the European Union’s largest deficit, fanning optimism credit risk will be contained.

The difference between the rate to convert State Flags fixed payments to floating and similar-maturity Treasuries over 10 years fell to 6.13 basis points yesterday, the lowest since at least 1988,according to data compiled by Bloomberg. Ten-year bond yields rose before reports today that may show U.S. service industries expanded at a faster pace and companies cut fewer jobs.

“The Greek plan will spur an unwinding of flight to quality, so yields may climb higher,” said Kazuaki Oh’e, a bond salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-largest lender. The narrowing swap spread “means that short-term funding is not a problem and financial market conditions are now back to normal,” he said

The yield on the benchmark 10-year note increased one basis point, or 0.01 percentage point, to 3.62 percent as of 6:25 a.m. in London, according to BGCantor Market Data. The 3.625 percent security maturing in February 2020 declined 2/32, or 63 cents per $1,000 face amount, to 100 1/32. Similar-dated swap rates were at 3.68 percent.

Swap rates are typically higher than sovereign yields to reflect the extra risk of trading with a financial institution instead of the government.