Tuesday, May 12, 2009

Swap spreads lead the way (3)

Another installment in this series. I first highlighted the narrowing of swap spreads back in late October/early November, and predicted that this was an important precursor of an improvement in other markets such as high-yield bonds and equities. Swap spreads are proving once again to be a great leading indicator of the health of the financial market and the economy. And the story is still playing out, as swap spreads continue to fall and are beginning to approach levels that might be considered "normal." Lower swap spreads say that high-yield debt and emerging market debt should continue to rally.

Full disclosure: I am long HYG and EMD as of the time of this writing.


ronrasch said...

Scott, is there any way to follow swap prices and also to learn more about what they represent/

Eccono-monkey said...

Hi- These swap spread have been really accurate as a leading indicator. Anyone have a link to further reading as to why or how they do so? Thanks