Biggest Treasury Buyers Turn to Swaps to Flee Price Swings
- Popular trade involves turning fixed rates into floating ones
- Swap trade works best for 20-year and 30-year Treasuries
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Japanese investors are turning to creative trades using interest-rate swaps to try and squeeze some yield from a volatile global bond market.
One such maneuver that’s gaining popularity seeks to lock in the yield premium longer-dated Treasuries have over equivalent swaps, by essentially going long the former and short the latter. Investors buy Treasuries and use the income from the bond to pay the fixed-rate leg of an interest-rate swap and pocket the difference.