The Swap Spread Trade Widener: A Moment of Truth for the Federal Reserve’s Portfolio Plans
October 28, 2025
One of this year’s most popular macro strategies, the swap spread trade widener, is facing a critical juncture. This strategy, which involves betting on the widening gap between interest rates on swaps and yields on equivalent-maturity Treasuries, is quickly gaining traction. On Tuesday, 30-year swap spreads reached their highest levels in eight months, indicating a surge in investor interest.
However, the future performance of this trade is closely tied to a pivotal decision by the Federal Reserve. The central bank is expected to update its $6.6 trillion securities portfolio at its upcoming meeting, and the outcome could significantly impact the swap spread trade widener. The key question is whether the Fed will halt its balance sheet reduction earlier than anticipated, a move that could have far-reaching consequences.
This potential shift in the Fed’s policy could either boost the trade’s performance or introduce uncertainty, as investors eagerly await the central bank’s next move.