Fed's FX swap line may not cap dollar LIBOR/OIS spread – Citi

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NEW YORK (Reuters) – The U.S. Federal Reserve’s currency swap line with overseas central banks may not stem a further widening of the spread on dollar three-month London interbank offered rate and overnight indexed swap rate, a Citi Research analyst said on Tuesday.

The premium of three-month LIBOR over three-month OIS, which is seen as a gauge of stress in the money markets, grew to 48.45 basis points earlier Tuesday, the widest gap since January 2012.

“Although 3-month LIBOR/OIS is approaching 50 basis points, we don’t believe central banks’ liquidity swap lines will prove to be a hard ceiling on LIBOR/OIS given the tenor mismatch, stigma costs, and collateral requirements,” Citi rates strategist Ruslan Bikbov wrote in a research note.

Reporting by Richard Leong; Editing by Steve Orlofsky



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