Samuel HansonAytek MalkhozovGyuri Venter2025-06-272024Hanson, Samuel G., Aytek Malkhozov, and Gyuri Venter. "Demand-and-Supply Imbalance Risk and Long-Term Swap Spreads." Art. 103814. Journal of Financial Economics 154 (April 2024).0304-405Xhttps://dash.harvard.edu/handle/1/42718589We develop and test a model in which swap spreads are determined by end users' demand for and constrained intermediaries’ supply of long-term interest rate swaps. Swap spreads reflect compensation both for using scarce intermediary capital and for bearing convergence risk— i.e., the risk spreads will widen due to a future demand-and-supply imbalance. We show that a proxy for the intermediated quantity of swaps—dealers’ net position in Treasuries— flipped sign during the Global Financial Crisis when swap spreads turned negative and that this variable predicts the excess returns on swap spread trades. Exploiting our model’s sign restrictions, we identify shifts in demand and supply and find that both contribute significantly to the volatility of swap spreads.swap spreadsArticle