Thriving Hedge Fund Trade Gets Boost From Soaring Swap Spreads

Traders are piling back into a popular hedge fund strategy that bets on US Treasuries outperforming interest rate swaps.

The so-called swap spread widener trade — which uses derivatives to wager that the gap between rates on interest-rate swaps and yields on Treasuries of the same maturity will grow — came under pressure at the start of the week after a Japanese bond market rout and rising tensions between the US and Europe over Greenland sent bond yields higher.