Halister News

(Bloomberg) -- Expect USD Libor rate to rise and FRA/OIS spread to widen a bit further into the full implementation of new money-market reforms on Oct. 14; these markets should then stabilize and represent a more realistic price for USD funding, ANZ strategists Martin Whetton and Katie Hill write in note.

• Further reduction in prime funds holdings in the coming days should push USD Libor higher and FRA/OIS wider
• After the full implementation of reforms, markets should stabilize and reflect more cyclical news around the banking sector, in addition to reflecting market-based expectations of a Dec. Fed rate rise
• Other key variables to watch include use of USD swap lines at various central banks, primarily the BOJ and ECB
• Domestic USD basis, which has steepened, probably reflects the peak for 1-year basis
• 3-month EUR/USD and USD/JPY cross-currency basis are also important to gauge the demand from non-U.S. counterparties hedging loans, assets and borrowings
• Widening bank credit spreads are an important measure of the market’s perception of asset quality; the CDS market has become an illiquid and poorly-traded financial instrument