At Any Rate Global Rates: Global DM Swap Spread Outlook
Mar 20, 2026
Ben Jarman, Australian rates strategist focused on AUD swap spreads. Takafumi Yamawaki, Japan rates strategist tracking JGB supply and fiscal risks. Francis Diamond, U.K. rates strategist on BOE policy and political premia. Ipek Ozil, U.S. rates strategist covering volatility, carry trades and geopolitical shocks. They discuss drivers of DM swap spreads, curve dynamics across markets, and key risks that could shift spreads.
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DM Swap Spreads Now Driven By Rates And Technicals
- Developed market swap spreads largely move together, but the first principal component explaining that co-movement has fallen sharply since mid-2025.
- Khagendra Gupta notes central bank policy rate expectations and long-end technicals now explain most cross-jurisdiction variation in spreads.
Low Volatility Fueled US Long-End Wideners Then Reversed
- US long-end swap spreads widened in early 2026 as low delivered vol made carry-seeking 'spread wideners' attractive, concentrated in the long end.
- Ipek Ozil says later volatility shocks from AI risk and the Middle East conflict reversed this, flattening the swap spread curve.
Wait For Curve To Normalize But Watch Geopolitics
- Expect US swap spread curve to steepen back toward fair value absent prolonged geopolitical risk.
- Ipek Ozil flags current curve is over two standard deviations from fair value, so normalization is the base case but geopolitical shocks can derail it.