U.S. SWAPS-Long-dated spreads steady after soft wage data

Fri Aug 1, 2014 3:53pm EDT

Related Topics

* Two-year swap spread hits widest since June 2013

* Five-year swap spread expands to widest in six months (Updates with late market action)

NEW YORK Aug 1 (Reuters) - The spreads on longer-dated U.S. interest swap rates over Treasuries yields ended little changed on Friday as a weaker-than-forecast readings on U.S. wage growth in July pared some worries about inflation.

The gap between the 10-year U.S. swap rate over benchmark 10-year Treasuries yields was 14.00 basis points in late trading, unchanged from late Thursday. It pared an earlier widening to 14.50 basis points before the release of the July jobs report, according to Tradeweb.

The 30-year swap spread was on track to finish at minus 2.25 basis points, compared with minus 1.25 late on Thursday.

Swap spreads measure the costs for traders to exchange fixed-rate cash flows for floating-rate cash flows. They grow with traders' expectations for interest rates to rise.

Fears about a pick-up in inflation were reduced after the government said average hourly wages barely budged last month. Economists had projected a 0.2 percent increase.

It also said domestic employers added 209,000 workers in July, below the 233,000 forecast by analysts polled by Reuters.

Still the latest jobs snapshot suggested there was enough momentum in the labor market for the Federal Reserve to consider raising rates in the middle of 2015, analysts said.

This caused a rise in short- and medium-dated swap spreads as traders expected higher costs to exchange for floating-rate cash flows.

The two-year swap spread was quoted at 20.75 basis points in late trading, the widest since June 2013, according to Tradeweb. The two-year spread finished at 20.00 basis points on Thursday.

The five-year swap spread was quoted at 14.25 basis points, which was the widest in six months and 1.25 basis points wider from late on Thursday. (Reporting by Richard Leong; Editing by James Dalgleish)

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