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’More on the dollar crunch and the liquidity drop
Right, here’s some early reaction to the latest central bank liquidity drop.
It comes from RBC’s Michael Cloherty, who makes the astute observation that it is now cheaper for foreign banks to borrow dollars from their central bank than it is for a US bank to borrow from the Federal Reserve:
An existential crisis in Eurozone rates [updated]
[Updated to clarify some points.]
Presenting the three-month EURUSD currency basis swap, currently trading at approx -137 bps:
Though, clearly things aren’t quite as bad as in 2008 (yet).
But they are at post Lehman records.
Contingency planning in six charts
Morgan Stanley’s US interest rate strategists have included a lovely set of charts in their latest research note that portray the moves in short-term markets due to the debt ceiling impasse. The strategists stress that the price moves don’t reflect liquidity shortages but are “the functional equivalent of a tightening,
Dear Uncle Trichet
Doing the rounds in the City of London on Wednesday morning.
Dear Uncle Trichet,
Would you please be so kind as to whip out your impressive chequebook in the next few days and stem this self-fulfilling crisis in Europe.
How much is this plain vanilla derivative in the window?
Just to be totally clear we’re talking plain vanilla derivatives like, say, interest rate swaps a bank might arrange on behalf of a company. But it seems they’ve taken on a more exotic flavour, of late.
Libor, repressed
From the annals of financial repression, we bring you Libor rates.
It’s a torrid tale of QE2, dollar funding and liquidity — and it’s one we thought we’d mention, given that the Federal Reserve’s second bout of quantitative easing has just come to an end.
Missing from the MPC minutes
Notably absent from Wednesday’s MPC minutes was any mention of the spread between gilt yields and Overnight Index Swap (OIS) rates.
The OIS is basically a proxy for the markets’ expectation of central bank rates.
Libor is useless
Much has been made of Libor’s recent descent to post-Lehman crisis lows. But while some say it marks the return of a healthy interbank lending market, others — rising in number by the way– appear to see it as evidence of Libor’s growing irrelevance.
A squeeze defreeze
Krrrrr, Krr, Krr, Krr-chunk… and splosh. Or, the crumbling sound of thawing ice as it detaches itself from the Arctic shelf.
That, at least, is the best way we can describe the sound coming from the Bloomberg machine’s Libor-OIS spread page: