The swap spread is the difference between the swap rate and the equivalent-maturity Treasury bond yield. Explain

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The swap spread is the difference between the swap rate and the equivalent-maturity Treasury bond yield. Explain why a widening swap spread may be a signal of deteriorating economic conditions. Plot since 2000 the difference between the five-year swap rate (FRED code: MSWP5) and the five-year Treasury yield (GS5). Interpret the evolution of this five-year swap spread since July 2007.

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Money Banking and Financial Markets

ISBN: 978-0078021749

4th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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