US Swap Spreads Widen on Treasury Market Stress, EUR/USD Under Pressure

US swap spreads have widened to their highest levels in six months, signaling growing concern about Treasury market conditions and liquidity constraints. The 10-year swap spread expanded to -8 basis points from -12 basis points last week, indicating increased demand for swaps over Treasuries as dealers face balance sheet pressures. This development has strengthened the US Dollar Index by 0.2% to 104.25, putting pressure on major pairs including EUR/USD which declined 0.3% to 1.0520 and USD/JPY which rose 0.4% to 157.80. The widening spreads reflect concerns about Treasury market functioning amid heavy government issuance and reduced dealer capacity. Market participants are monitoring Federal Reserve responses, as similar conditions in 2019 prompted repo market interventions. For forex traders, the dollar's strength from financial stability concerns presents opportunities in USD longs, though excessive Treasury market stress could trigger risk-off flows benefiting safe havens like JPY and CHF.