Negative swap spreads hit bank capital buffers
Portfolios of asset-swapped US Treasuries see mark-to-market losses of up to 20bp
Negative swap spreads have taken a bite out of banks' capital buffers, with summer moves by European firms to invest in US dollar-denominated assets compounding the pain for some.
"Swap spreads have now become negative, so asset swaps at intermediate maturity are now trading at a Libor-positive spread, so that implies if you bought asset swaps a year ago, right now you are under water," says a senior rates trader at a European bank in New York.
Banks in the US and increasingly Europe hold US
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