Halister News

(Bloomberg) -- Widening of FRA-OIS, Libor-OIS and swap spreads reflect structural changes related to Oct. 14 money market reform deadline, not a “2008 re-run,” Triple T Consulting’s Sean Kean said in note distributed to Credit Suisse clients.

• NOTE: Libor set at 0.7430%, highest since May 2009; Libor- OIS at 32.7bps, widest since May 2012; FRA-OIS 39.3bps, widest since June 2012
• While increase in funding pressure is real, it’s not signaling a new crisis or indicative of “some form of leveraged Achilles heel” in global funding mkts
  • Even though there’s demand for USD funding, the “degree of pressure” has been steadily building as reform deadline nears
• Money mkt adjustments shouldn’t “spill over into anything more serious” other than a period of “market disruption and repricing,” as well as discomfort for foreign borrowers as they seek out USD funding sources
  • May mean USD premium via FX swap market remains elevated, especially amid the absence of arbitrage and basis traders, who are less willing and able to undertake “large basis mismatch trades”
• “Reasonable to assume” 30%-40% of remaining balances will be withdrawn before mid-Oct. and most of money mkt conversions will be done by mid-Sept.