The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Foreign Exchange

FX comment: Scramble for dollar liquidity intensifies

It was an old friend, still trading forward cable, who first alerted me to the beginnings of a Libor/OIS basis blowout a couple of weeks ago. But at the start of this week the move took a more desperate turn as the hunt for dollars accelerated with rumours of a Spanish bank being unable to cover its short-term USD funding.

Over the past two weeks, one-month and three-month GBP/USD FX swaps have moved from –2 and –5 to +2 and +5 respectively, equating, by my reckoning, to about 35 basis points of dollar tightening in the interest rate spread. But it took a note on Tuesday from Laurence Mutkin and Elaine Lin of Morgan Stanley to put the move in some perspective.

They point out that that the ECB’s “full-allocation USD tenders provide an unlimited amount of USD to banks at an implied OIS+100bp”. However, with that implied level still far higher than Libor and even the FX basis, the tender has so far “attracted a negligible $1 billion of interest from the market” – a different situation to 2008 when it was “accepted with enthusiasm”. Incidentally, on Wednesday The Wall Street Journal cited the old journalistic staple “people familiar with the matter” as saying that “Spain's Banco Bilbao Vizcaya Argentaria, or BBVA, is reportedly unable to renew its $1 billion of short-term funding in the US.”

Morgan Stanley also notes the widening of forward Libor/OIS spreads compared with spot spreads and that the gap between spot and forward spreads “is now much higher than at any time in the past, including the depths of the liquidity crisis”.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree