Bond Supply Concerns Are Showing Up in Swap Spreads, BIS Says

The Bank of International Settlements is pointing to the impact that hefty government borrowing is having across global rates markets, saying investors are already demanding higher premiums to buy sovereign bonds.

In its quarterly review published Tuesday, the institution highlighted the rapid narrowing of swap spreads in various currencies and maturities in recent months. The BIS said the moves are “tell-tale signs of a possible supply glut.”

Government bond yields in the euro area and Japan recently surpassed equivalent interest-rates swaps on concerns over vast debt piles and ballooning deficits. That’s caused the so-called swap spread to turn negative ...