Undeterred, hedge funds bet on euro swap steepeners
Expected rate cuts and pension reforms are driving steepener flows, but large pension funds may not be finished hedging at the long end
Hedge funds are returning to a popular rates trade despite uncertainties over inflation and Dutch pension reform.
Dealers report a renewal of interest in euro swap steepeners, which aim to profit from a widening gap between the fixed rates on short-dated and long-dated interest rate swaps.
In particular, traders are taking a punt on the spread between 10-year and 30-year swaps, known as 10s30s. This basis is likely to widen if central banks cut interest rates later this year, as expected.
“In
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