Morgan Stanley: inverted swap spreads will alter pension fund hedging
The UK 30-year gilt rate has been higher than its swap equivilant since mid-2008 and while the spread has shrunk from its 150-basis-point peak it still stands at about 50bp, according to data from Morgan Stanley. This is a reversal of pre-crisis market norms and inverted spreads are generally regarded as anomalous due to the lower credit risk associated with government debt.
But Laurence Mutkin, senior European interest rate strategist at Morgan Stanley, disagrees. He argued inverted spreads
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