0
$\begingroup$

I read that recently, due to the covid-19, the pressure on the dollar market has risen significantly on the demand side. That is why the dollar basis became largly negativ.

https://www.bloomberg.com/news/articles/2020-03-17/how-cross-currency-basis-swaps-show-funding-stress-quicktake https://www.bis.org/publ/bisbull01.pdf

I tried to replicate this calculation for a university Essay. From the spot and 3M fwd rate I calculated the implied dollar interest rate. Then for the basis from this I extracted the 3M USD LIBOR. However my graph is looking like this:enter image description here It seems to me pretty the same, but on the positive side. Do I misinterpret it, if I say, it shows the premium which I have to pay, due I don't have access to direct us market, so I finance through the off-shore dollar market? Could someone explain me, whether I misunderstood something or am I using the wrong dataset. Thank you!

Improve this question
$\endgroup$
0

1 Answer 1

Reset to default
1
$\begingroup$

Basis is almost always calculated on the non-usd leg - which explains why your signs are the wrong way around.

Improve this answer
$\endgroup$
1
  • $\begingroup$ Thank you, meanwhile I also found that out. Yeah, that's correct, it explains it. I don't know, why I can't upvote you, but thank you. $\endgroup$
    – Tamás F
    Commented May 11, 2020 at 6:19

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.