Funding changes break cross-currency, Libor/OIS link

Tax reform and Treasury issuance focuses bank US dollar funding pressures onshore

A dislocation between the US dollar Libor/overnight index swap (OIS) basis and the cross-currency swap basis is being blamed on a fundamental shift in how domestic and foreign banks source US dollar funding.

The combination of US tax reform on January 1 and a $300 billion issuance of short-tenor US Treasuries, known as T-bills, since February 15 has resulted in three-month Libor/OIS rising to 59 basis points from 26bp at the turn of the year. While normally this would be accompanied by a