Sterling swap rates to rise and the swaps curve to steepen
Swap rates have fallen sharply in recent months
Sterling swap rates to rise and the swaps curve to steepen Swap rates have fallen sharply in recent months
The outlook for swap rates is important for households and companies looking to refinance loans, as many fixed rate products are priced off swaps. In the past three months, swap rates have fallen sharply, mainly reflecting the deteriorating outlook for the UK economy. In particular, Q2 GDP growth was unexpectedly revised down to zero, the first time the economy has not expanded since 1992. Thus, UK 5-year swaps have fallen around 100bps in the past
quarter. As chart a shows, short-dated swaps have generally fallen the most in the past quarter, despite heightened financial market risk aversion pushing short-dated swap spreads higher, as chart b shows.