The increase in swaps volumes comes as a result of the equity markets downturn that has led to an increased move out of the equity markets. “End-users are switching out of equity into fixed income using swaps as a proxy for the fixed-income element,” Pearson added.
The 10-year to 30-year part of the swaps curve has flattened significantly from its levels earlier this year, due to the increased volumes. 30-year swaps continue to offer good pickup for investors looking to move out of equities, and have been at 5.30% over the past three weeks. But the increase in activity has now caused rates to fall to around 5.17%.
Market participants expect the swaps activity to continue as the equity markets continue to drop. Pearson pointed out that several European institutions have yet to complete their swapping programmes and, as a result, expects to see a lot more activity in the market.