Macro Digest: US Dollar "thirst" @ cycle high - Harbinger for margin call on US debt?

My colleague John Hardy points out this very interesting "new trend"(via excellent post from soberlook.com) – EUR basis swaps is tanking indicating "thirst" for USD…… this was crisis sign during 2010/11 but Soberlook.com explains it with cheap funding, US based investors issuing in Euro and repatriating in US dollar. Very fine, but JPY basis swap is showing same trend.

 

http://soberlook.com/2015/04/renewed-demand-for-dollar-funding-in.html

 

 

 

Could it be that we have "small margin call" on US Dollar debt? Which has risen by 2 trillion since 2010 according to BIS:

 

Contrary to popular belief, the world is today more dollarized than ever before. Foreigners have borrowed $9 trillion in US currency outside American jurisdiction, and therefore without the protection of a lender-of-last-resort able to issue unlimited dollars in extremis. This is up from $2 trillion in 2000.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/11465481/Global-finance-faces-9-trillion-stress-test-as-dollar-soars.html

 

 

Whatever the reason – it's something to keep an eye on as June / September margin call on asset inflation is coming …..or a more cynical inclined person than me could say:

 

This is clearly debtors in US dollar realising FED is "really" going to hike - We better get those US dollar on the books before rest of market wakes up……..Good thing I'm not cynical

 

Safe travels,

 

Steen

 

 

From: John J. Hardy (JJH)
Sent: Tuesday, April 07, 2015 1:18 PM
To: Steen Jakobsen (SJN)
Subject: EURUSD basis swap falling and why

 

Interesting

http://soberlook.com/2015/04/renewed-demand-for-dollar-funding-in.html

 

 

 

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John J. Hardy  |  Head of FX Strategy

 

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