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Summary (partial) "In normal conditions, swaps have higher yields than government bonds, usually taken to reflect the higher credit risk of bank defaults compared to government backed obligations. A move from government bonds to swaps as a basis for liability discounting, leads to lower stated liabilities. At the time of writing (December 2008), and with a banking crisis still daily in the headlines, we might expect the credit spread between government bonds and swaps to be large. However, in Sterling and Euro markets, the opposite has occurred, giving rise to swap yields that are even below government bonds. This note provides some background and explanation for this reversal, and explores the consequences for insurance and pensions."

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