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2026-02-19 21:20:03
[Swap Spreads Narrow, Decreasing Volatility Fuels Compression, US Treasuries Lag Amid Retreat] ⑴ On Thursday, dollar swap spreads opened narrowing, lagging behind the overnight retreat in US Treasuries. Approximately $5.15 billion of the $13.03 billion investment-grade corporate bond issuance on Wednesday is expected to be traded in swaps, and these positions were successfully absorbed overnight. Meanwhile, the volatility of 3-month/10-year swap options fell from 70.8% to 67.9%, providing additional impetus for spread compression. ⑵ However, as US Treasury yields continued to rise, small directional payers limited swap selling. SOFR futures fell further after the Fed minutes revealed policy disagreements but a convergence of views on stabilizing the job market and sticky inflation, further postponing expectations of rate cuts. ⑶ US Treasury yields rose across the board, continuing Wednesday's retreat. Data showed the US economy is still functioning, while the Fed minutes postponed expectations of a rate cut in 2026. Oil prices rose above $70 due to concerns about the US-Iran conflict, exacerbating market risk aversion. The yield curve shifted upwards in parallel, with the middle section underperforming the two ends ahead of the month-end supply announcements for 2/5/7-year Treasury bonds. (4) During daytime trading, US Treasury prices rebounded from their Tokyo session lows. Strong demand at the 20-year Japanese bond auction caused front-end curve compression, triggering some selling, but technical buying emerged during the London session, encouraging short covering ahead of the data release. As of press time, the 2-year yield was 3.472%, and the 10-year yield was 4.094%. European stocks and US stock futures declined, the dollar index rose slightly to 97.78, Brent crude oil rose 1.75% to $71.54, and gold broke through $5,000 to $5,012.83.
