Working Paper presents research work by both Danmarks Nationalbank’s employees and our partners. The series is primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

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An empirical analysis of factors driving the swap spread

In this paper, we perform a robust analysis of the determinants of US swap spreads using a wide range of theoretically motivated candidate factors. We conduct an analysis in the frequency domain to see how the impacts of the candidate factors on the swap spread differ between different horizons. The sensitivity of the parameters to all possible model specifications has been investigated. Among other things, we find that Treasury- and stock market volatility as well as the activity of the Mortgage Backed Security holders have strong impacts on the US swap spread.