The 1-Year and 2-Year Swiss Franc Swap rates turned negative on August 16 and August 17 (chart on the left). This apparantly also happend to the Singapore dollar Swap rates. These are extremely rare occurances and suggest extreme dislocation in the marketplace.
What does this mean?
The 1-Year Swiss Franc Swap rate is a vanilla interest rate swap benchmarked to 6-month CHF rate set by the British Bankers Association (BBA). Here the fixed rate payer agrees to pay the 1-Year Swap rate to the receiver in exchange for getting 6-month CHF rate plus a spread.
In this agreement the risk-averse party is the receiver since it is guaranteed to get fixed rate payments. The swap payer is the risk taker because it is bearing the risk of fluctuating rates.
(More ...)
Why is this important from MacroStrategy standpoint?
This suggests that investors are extremely risk-averse. (More....)
