Euro swap spread volatility challenges Bund’s hedging role
German Bunds face scrutiny as euro swap spreads turn negative, forcing traders to rethink hedging strategies
German government bonds were often considered to be the ultimate hedge for euro swaps, but after a historic euro asset swap spread tightening in November, rates traders say that assumption is being brought into question.
The euro swap spread measures the difference in nominal yields on German government bonds versus the fixed leg of euro interest rate swaps. For the first time ever, the 10-year euro swap spread entered negative territory on November 11, reaching -3 basis points, before moving
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