Trading risk in the interest rate swap market can sometimes lead to destabilizing behavior. Convergence trading can affect market liquidity and asset price volatility. When traders face losses, the swap spread converges more slowly to its normal level. Higher trading risk can cause the spread to diverge from that level. Convergence trading absorbs shocks, but large shocks can be amplified when traders close out positions prematurely. Destabilizing shocks in the swap spread lead to a fall in repo volume. Research shows that markets are generally self-stabilizing, but external and internal constraints on trading activity can weaken the role of speculators.