Swap spread: Difference between revisions

Revision as of 13:03, 4 June 2025

Revision as of 13:05, 4 June 2025

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==Potential developments==

The advent of electronic trading platforms such as TradeWeb, Bloomberg, YieldBroker and Reuters is beginning to change the behaviour of swap spreads. The rise of the electronic market is enabling expeditious processing of transactions and the development of algorithms to execute transactions globally. Artificially intelligent systems are also acting as digital market makers which is increasing the volatility of swap spreads and their pace of change within the markets. The growth in algorithmic trading increasing the velocity in swap spread movement is amplified by the growth in passive ETFs and the increase in passive trading styles which aim to execute a large number of transactions across portfolios which comprise of thousands of positions. <ref name=Sclip> Sclip, Girardone, C., & Miani, S. (2019). Large EU banks’ capital and liquidity: Relationship and impact on credit default swap spreads. The British Accounting Review, 51(4), 438–461. https://doi.org/10.1016/j.bar.2018.10.001</ref> This surge in transaction scale has been enabled by machines as humans have not been able to execute transactions of this magnitude in the past. (Refinitive<ref Perspectivesname=Refini /> 2021) The surge in transactional quantity has triggered bond scarcity across the markets which is largely influential on swap spread movements. Therefore the relationship between swap spreads and bond quantity available within the markets has grown.

==Variation across economies==