Given the deterioration in public finances, the concept of risk free rate has to be reworked. Gilts rates rose above swap rates in February 2010.

For the first time, 10Y swap rates are lower than 10Y government rates.

Recent auctions were not so well bid, leading to questions about supply issues.

The US government borrows at…swap +4bps !

Eoin Treacy's view The fact that UK and USA corporates can now borrow at more favourable rates than their respective governments is a clear illustration of the stress government balance sheets have been put under as they continue to absorb private sector debt. Similar spreads for the Eurozone, Japan and Australia are not negative but corporates are also experiencing favourable borrowing conditions relative to governments in these jurisdictions. These charts support the continued argument for favouring quality, AAA rated bullet corporate bonds as alternatives to riskier Treasuries or Gilts which remain reliant to one extent or another on government support to hold yields down.

The Canadian Swap spread is of interest because it is heading in the opposite direction to the above spreads. It collapsed in between September and November 2008 but bottomed near -40 basis points and continues to trend higher. It is now testing the first area of potential resistance at the bottom of the pre-crisis range and a sustained move below +6.5 basis points would be required to question scope for continued higher to lateral ranging.