Was Wednsday’s cordinated central bank intervention in currency swap markets all for nothing?
Currency basis swap markets certainly seem to think so.
As Citi’s CitiFX Wire notes on Wednesday London afternoon time:
Well the central banks have certainly injected some volatility into the market. The 3m EUR-USD cross currency basis tightened from -160bps to -120bps and has now moved back to around -140bps. The 3m swap has had a range of +7 to +23bps, now +16. These are huge moves given the volumes traded.
Here’s the chart (though, the Reuters chart uses ICAP data which doesn’t quite show the swap tightening as far as -120 bps, but you get the general gist):
Central banks, what are they good for?
Mainly, it seems, for generating volatility.
Related links:
Currency basis swaps as a funding tool – FT Alphaville
Dollar funding — central banks intervene – FT Alphaville