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Dollar Borrowing Cost Plunge to Lowest in Decade

Greenback borrowing costs in the international exchange swap markets retreated further Monday, with swap rates against the euro and pound plunging to their lowest levels in additional than a decade.

Dollar Borrowing Cost Plunge to Lowest in Decade

These moves point out the latest emergency actions by global central banks have managed to squelch a growing greenback shortage in these markets.

Costs contracted after the U.S. Federal Reserve stepped in, first renewing swap lines with major central banks, then extending related facilities to other central banks, and finally establishing a new temporary ‘repo’ facility.

Greenback borrowing rates via the 3-month euro-greenback FX swap plunged to a 12-year low of minus 65 bps, indicating that European debtors are capable of borrowing greenback at a discount. This rate had swung to a 2011 European crisis-era high of over 150 bps two weeks earlier.

Similarly, borrowing prices against the pound in the three-month sterling-greenback FX swap market also dropped to a 12-year low of minus 42 bps. Three-month dollar-yen swaps additionally fell its lowest level in eight years at minus 30 bps, based on Refinitiv data.

Nevertheless, the reversal in the currency swaps market was not reflected in different corners of the derivative markets with 2008 monetary crisis-era indicators resembling FRA-OIS spreads, nonetheless caught near multi-year highs, partly a reflection of a broad demand for dollars amongst companies.

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