Transaction costs. Investors prefer swaps because they carry lower transaction costs. (When something doesn&#x27;t make sense in finance, it&#x27;s almost always transaction costs.)<p>Suppose you&#x27;re a rates dealer. (Rates dealers buy and sell Treasuries and swaps, amongst other things.) An investor wants to invest at the 10-year rate. Say they insist on getting this in the form of a U.S. Treasury. You must either (a) buy a Treasury on the market or (b) pull one from inventory. No other options. Say, on the other hand, they are open to dealing in swaps. You could hedge this like a Treasury. You can also hedge with another swap. Two options instead of one. Makes your life easier, doesn&#x27;t it?<p>Dealers always preferred swaps. But investors didn&#x27;t like taking on the counterparty risk. Dodd-Frank changed that. Now swaps are mutualized. If you take out a swap with JPMorgan and they go kaput, other parties will pool together to make you whole. Less of a difference, in terms of credit quality, between a swap and a Treasury now. Dodd-Frank also made it more expensive to hold Treasuries in inventory.<p>In summary, swaps were always tastier to dealers. Dodd-Frank made them more attractive to investors. At the same time Treasuries became even less fun for dealers. Left hand meets right hand and you get lower fees on swaps with a commensurate shift in net pricing.