Dollar borrowing costs jump on quarter end flows- traders

LONDON (Sept 29) - Borrowing costs for U.S. dollars via the euro and the Japanese yen funding markets rose to their highest levels since June as quarter-end portfolio rebalancing flows boosted demand for the greenback.

These opaque money market indicators shot to the limelight during the depths of the coronavirus-fuelled market mayhem earlier this year, when a global rush to secure short-term dollar funding sent global markets in a tailspin, forcing central banks to roll out unprecedented waves of stimulus.

While global markets remain awash in liquidity, traders reported a quarter-end pickup in demand for dollars as the main factor behind the widening of these money market spreads.

Three-month borrowing costs in the Japanese yen widened to minus 29.4 bps, the highest levels since June and nearly doubling from minus 15 bps on Monday. It hit a post-global financial crisis 2008 high of minus 143 bps in late March.

Three month borrowing costs for U.S. dolllars via euros tripled to minus 16 bps from minus 5 bps overnight.

In March, it peaked at minus 80 bps "Quarter-end flows and half-year ending in Japan could explain the demand for dollars and widening in spreads" said Kenneth Broux, a strategist at Societe Generale in London.

Reuters