3. Swaps (30 points) Below Zero 2-year spread falls below zero, joining other maturities "5-year swap spread ON-year reap spread # 10-year swap spread 03-year woop spread -40 -20 -20 Basis Points 2014 2015 2016 2017 2018 2015 Sourcal Blodribing The graph above show the swap rates between fixed U.S treasury rates and floating rates, As you can see the swap rates for all maturities is now below zero... a) Please explain the economic logic behind why this is happening? (10 points) b.] Now assume you entered into a 100 million 10 year swap in 2017 with the following market conditions (20 points) +40 basis points spread for floating over 2 year fixed +80 basis point spread for 30 year over 2 year fixed Value the 2 YEAR FIXED FOR FLOATING SWAP and a 30 YEAR FIXED FOR FLOATING SWAP assuming the current conditions are: 0 basis points spread for floating over 2 year fixed +35 basis point spread for 30 year over 2 year fixed There are 8 years left on the bond, the coupon has just been paid, coupons are paid semi- annually, and the current U.S term structure is given as Date 1 Mo 2 Mo 3 Mo B Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr 08/27/18 2.18 2.16 2.14 2.12 1 82 1.74 1.71 1.78 1.88 201 231 2.62