While doing further investigation on what has been the root cause of the 30-year swap inversion, Lars Toomre came across an interesting article published by Reuters on Monday November 17th 2008. In that article,

In recent days, another type of hedging emerged, according to UBS analysts.

Whenever the dollar has weakened at or below 97 yen since late October, sellers of Power Reverse Dual Currency Notes (PRDCs) have been keen buyers of 30-year swaps, they said. PRDCs are structured so Japanese investors can obtain a higher yield of the dollar Libor curve but receive the cash flows in yen.

When the dollar breaks below 97 yen, it lengthens the duration of PRDCs and forces sellers to receive 30-year fixed-rate cash flows via 30-year swaps, UBS analysts said.

What the heck are Power Reverse Dual Currency Notes? Just from the name, it reminds Lars of the incredible swap that Bankers Trust sold to Proctor and Gamble and which caused such major losses during the 1994 increase in short-term interest rates.