G3 Recap 8-19-11

Main Items:

  • USD Funding Issues persist:
  • 3m Libor broke above 30bps today, setting at 0.303.
  • Fed announced that it lent 200mm for a week to the SNB via swap lines last week. Both UBS and Credit Suisse said it wasn’t them. The swap is now expired.
  • French general collateral rates reportedly jumped 40bps at one point over night.
  • Canadian Core CPI rose 1.6% YoY in July as exp vs 1.3% prev

Overseas:

  • Periphery CDS continued to increase today.

Commentary:

  • The EURUSD basis (the chart of the 3m basis is below) has remained at stressed levels despite ECB support for periphery debt. Some EUR based entities clearly is having trouble getting USD.

    This view is corroborated by a rising TED spread:

    These type of events usually end with some sort of crisis because the funding market is reflexive. It will be difficult for risk assets to rally while these distortions in USD funding markets persist.

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