The economic fallout from the COVID-19 crisis has led to stress in US dollar funding markets over the past few weeks, reflecting both demand as well as supply side factors. US dollar funding demand has grown in recent years due to currency hedging by corporates, banks and portfolio managers outside of the United States (the US). It is likely to increase further as demand from EM countries’ corporates and financial institutions should increase with pandemic-related lockdowns, supply chain disruptions and economic strains.
The FX swap basis is the difference between the dollar money market interest rate and the implied dollar interest rate in the FX swap market, where US dollars are borrowed against another currency as collateral. A negative basis would mean borrowing dollars through FX swaps is more expensive than borrowing from the dollar money market. This also makes it dearer for international investors to hedge US dollar exposure owing to the impact on the pricing of forward foreign exchange.
This website is intended for persons resident in Australia. State Street Global Advisors, Australia Services Limited ABN 16 108 671 441, AFSL Number 274900 ("SSGA, ASL") is the product issuer. State Street Global Advisors, Australia, Limited (AFSL Number 238276, ABN 42 003 914 225) (“SSGA Australia”) is the Investment Manager. The material on this website is general information only and does not take into account your individual objectives, financial situation or needs. You should read and consider the Product Disclosure Statement (PDS) for the relevant product carefully before making an investment decision and consult your financial adviser. You can access our PDS online or by calling us. The offer made in our PDS is available to persons receiving the PDS within Australia and applications from outside Australia will not be accepted. Past performance is not a reliable indicator of future performance. Investing entails risks and there can be no assurance that State Street Global Advisors will achieve profits or avoid incurring losses.
Investing involves risk including the risk of loss of principal. This material should not be considered a solicitation to apply for interests in the Funds and investors should obtain independent financial and other professional advice before making investment decisions. There is no representation or warranty as to the currency or accuracy of, nor liability for, decisions based on such information. Performance quoted represents past performance, which is not a reliable indicator of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.