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Negative Swap Spread
Hi All, Recently I looked at the historical data of 5 year canadian swap rate vs 5 year generic CA governement bond rate on Bloomberg and found out that the swap spread has been negative since last November? Could anybody explain why this would happen? Does that mean the credit risk of government is higher than the counterparties? This also happens to our 30 year swap spread in US which I don't know how to explain this.Thanks for your help!
Negative Swap Spread
The reason for the unusual Canadian situation is the Canada Mortgage Bond program. For some details seehttp://www.cmhc.ca/en/hoficlincl/in/camobo/upl ... rogram.pdf
Negative Swap Spread
David, How does the Canadian Mortgage Bond program affects the swap rate? Does that mean it causes the demand of Canadian Treasury to go down which drive up the treasury rate to be above the swap rate? Thanks!