Bank swap books suffer as CME-LCH basis explodes

Per-bank losses estimated at $20m; CME could lose business

A build-up of interest rate swap exposure among dealers clearing at CME Group is being blamed for a two-week surge in the relative cost of sending trades there, rather than using rival venue, LCH.Clearnet. The 13-fold increase in the spread between the two is thought to reflect attempts by dealers to cover losses as the formerly flat market started to move.

"The basis has been quoted at around 0.15 basis points forever, but the 10-year US dollar swap is now at almost 2bp, which is unheard of,"