Stock market today: S&P 500 in fifth straight record close as earnings shine
Pay 5Y swap against 2Y/10Y swap 3M fwd @ -28bp. P/L:-15bp/-38bp. 3M roll down flat.
As rates have moved steadily lower, unsurprisingly, the yield curve curvature has steadily decreased. The 5Y point on the swap curve has outperformed the 2s10s. However, now we argue that this outperformance is nearing the end, independent of the direction of interest rates. Indeed, we see clear signs that the yield curve dynamics in the 5Y segment are about to change. We believe that regardless of whether rates move lower or higher from here, yield curve curvature (5s vs 2s10s) is likely to increase.
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