Market participants have been surprised by the decline of U.S. interest rate swap rates relative to Treasury yields of equal maturity over the past two years, with interest rate swap spreads becoming negative for many maturities. This movement of swap spreads into negative territory has been attributed anecdotally to idiosyncratic factors such as changes in foreign reserve balances and liability duration management by corporations. However, we argue in this article that regulatory changes affected the willingness of supervised institutions to absorb shocks. In particular, we find that increases in the required leverage ratio may have changed the breakeven level of the swap spread at which market participants are willing to enter into spread trades. We present a stylized example of these economics, illustrating how a higher leverage ratio can help explain these historic movements in swap spreads.