Interest Rate Swaps: Putting Out A Fire With Gasoline?
Continuing from A Yen For Liquidity? Or No Yen For Carry? ....
ED has been and is still rising (higher Eurodollar contract price translates to lower cost of loan funds). As as consequence, lower ED has LIBOR suddenly dropping...
In January, 90 day USD LIBOR saw it's largest monthly decline since 2010. Something sticks out in the MSM spin... due to fund inflows increased MMF demand pushed 90 day LIBOR lower?
Let's see how other key rates performed over the same period, such as the alternative SOFR. Au contraire, an INCREASE in SOFR from 2.20 to 2.45, spiking year end to 3.15, then reverting to norm and hovering at 2.40 - 2.45.
Salmo Trutta makes us remember our catechisms.... Interest rates are NEVER to be misconstrued as the price of money. Rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs.
Moving West... to review, 90 day LIBOR was at 2.82+ sinking to 2.697, what does this tell us? While all other measures were INCREASING, 90 day USD LIBOR which is tied to $200 Trillion in interest rate swaps and floating rate notes did NOT increase, it declined. Why?
Might the LIBOR move have something to do with IRS (Interest Rate Swaps) and floating rate notes? When interest rates decline (post IR swap agreement) a fixed rate payer is disadvantaged while the floating rate payer is advantaged.
Any floating rate payer anticipating an increase in rates might hedge their position. On the other hand, any fixed rate payer anticipating a decline in rates might hedge their position. How?
Through IRS (interest rate swaps) or by utilizing a synthetic IRS in the form of Eurodollar strips. Must be some pretty big parties who are anticipating a decline in rates and want to hedge their positions?
The media spin "fund inflows and increased MMF demand pushed 90 day LIBOR lower." would make one think that 90-day USD LIBOR loan volumes had actually increased, and that this was a healthy sign? If they had, would the price have declined? In this upside down, topsy turvy ZIRP, NIRP world, lower rates are indicative of lower demand.
IMHO, 90-day LIBOR loan volumes are headed the way of overall loan volumes, down. Can we get any confirm on that?
With the recent LIBOR decline, between Jan 20th and Feb 8th, the TED spread declined 16bps from .048 to .032. Less risk? or less liquidity? The latter we think...
If one want's prep for what's coming, read China's Dollar Swap Addiction?, Meddling With Powers? and get a healthy dose of There is Something in this More than Natural?
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
A Case of Tape-r Worm?
Beware The Ides of Winter Early?
A Disturbing Lack of Faith?
Canary In A Coal Mine?
FreeTrade Warning?
Global Economy Down?
Wear Sunscreen?
Trust Me On The Sunscreen?
Let Me Warn You?
Lunar New Year For Old Blind Men?
Shutdown Impacts Inflection?
LIBOR: Putting Out A Fire With Gasoline?
A Yen For Liquidity? Or No Yen For Carry?
ED has been and is still rising (higher Eurodollar contract price translates to lower cost of loan funds). As as consequence, lower ED has LIBOR suddenly dropping...
In January, 90 day USD LIBOR saw it's largest monthly decline since 2010. Something sticks out in the MSM spin... due to fund inflows increased MMF demand pushed 90 day LIBOR lower?
Let's see how other key rates performed over the same period, such as the alternative SOFR. Au contraire, an INCREASE in SOFR from 2.20 to 2.45, spiking year end to 3.15, then reverting to norm and hovering at 2.40 - 2.45.
Salmo Trutta makes us remember our catechisms.... Interest rates are NEVER to be misconstrued as the price of money. Rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs.
Moving West... to review, 90 day LIBOR was at 2.82+ sinking to 2.697, what does this tell us? While all other measures were INCREASING, 90 day USD LIBOR which is tied to $200 Trillion in interest rate swaps and floating rate notes did NOT increase, it declined. Why?
Might the LIBOR move have something to do with IRS (Interest Rate Swaps) and floating rate notes? When interest rates decline (post IR swap agreement) a fixed rate payer is disadvantaged while the floating rate payer is advantaged.
Any floating rate payer anticipating an increase in rates might hedge their position. On the other hand, any fixed rate payer anticipating a decline in rates might hedge their position. How?
Through IRS (interest rate swaps) or by utilizing a synthetic IRS in the form of Eurodollar strips. Must be some pretty big parties who are anticipating a decline in rates and want to hedge their positions?
The media spin "fund inflows and increased MMF demand pushed 90 day LIBOR lower." would make one think that 90-day USD LIBOR loan volumes had actually increased, and that this was a healthy sign? If they had, would the price have declined? In this upside down, topsy turvy ZIRP, NIRP world, lower rates are indicative of lower demand.
IMHO, 90-day LIBOR loan volumes are headed the way of overall loan volumes, down. Can we get any confirm on that?
“Banking is not a place to collect deposits and sit on them,” Turkish finance minister Berat Albayrak told chief economic correspondents of Turkish media outlets on February 6, Seref Oguz wrote on February 7 in his column for Sabah.
Albayrak also complained that loan volumes were not growing despite declining interest rates.
“The deterioration in the credit market continues in the first month of 2019. As of January 25, total credit volume rose by 12.4% yoy, the slowest pace in more than two years,” Isbank Research said on February 7 in its monthly economic review. - IntellinewsAt least in Turkey? Sitting on deposits and declining loan volumes amidst declining rates? For some potential "news of the future"? read what Isbank Research said in their monthly economic review dated February 2019.
Unlike distorted asset prices, and central bankers who pivot from hawkish non existent wage inflation pressure to dovish patience in a matter of weeks, and a declining TED spread (more on that later), Uncle ED never tells lies. LIBOR is sinking in anticipation of what?We said we would come back to this, interesting codicil: a declining TED spread, the difference between private interbank LIBOR and public risk free T-bills, usually indicates less perceived risk. TED Spread - Historical Chart
With the recent LIBOR decline, between Jan 20th and Feb 8th, the TED spread declined 16bps from .048 to .032. Less risk? or less liquidity? The latter we think...
"Every dollar used to purchase that coveted HQLA collateral (UST) for liquidity is taken out of circulation and reduces the float. This puts the screws to anybody short (borrowing) the dollar. Got it?"Witness what happens to USD carry trades when markets have little to no Yen for such? Now think anyone (leveraged or not) doing forward dollar swaps or synthetic ED who is short (borrowing) the dollar. More to come in Expectations: Putting Out A Fire With Gasoline? Stay tuned, no flippin.
If one want's prep for what's coming, read China's Dollar Swap Addiction?, Meddling With Powers? and get a healthy dose of There is Something in this More than Natural?
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
A Case of Tape-r Worm?
Beware The Ides of Winter Early?
A Disturbing Lack of Faith?
Canary In A Coal Mine?
FreeTrade Warning?
Global Economy Down?
Wear Sunscreen?
Trust Me On The Sunscreen?
Let Me Warn You?
Lunar New Year For Old Blind Men?
Shutdown Impacts Inflection?
LIBOR: Putting Out A Fire With Gasoline?
A Yen For Liquidity? Or No Yen For Carry?
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