Bloomberg writes the odd, "Money-Market Roller Coaster Must Contend With Stock Trades." It says, "Thank the U.S. stock swoon for easing pressure on a key corner of besieged global money markets -- the cross-currency basis. It may even help flip the axis for dollar premiums around the world, pushing them into positive territory. A drop in investor demand for equities may have been a catalyst for the recent narrowing in cross-currency basis -- a part of the cost of hedging for foreign investors buying U.S. assets. That dynamic has helped offer some relief as short-term dollar interest rates have risen to crisis-era highs, according to one Wall Street money-market guru." The piece quotes Credit Suisse's Zoltan Pozsar, "We are witnessing the first major example of how an equity selloff impacts basis markets [since global bank-capital rules were tightened].... `Every segment of the global dollar funding market is in flux." Bloomberg adds, "Expecting strong client interest for stock exposure, investment banks had prepared sizable funding for their equity desks, the strategist explained. Yet demand slumped after the February selloff and the glut of cash was quickly shunted to currency desks and out into the market. That accentuated the tightening in the cross-currency basis, the premium investors pay to procure dollars, he said. "`When equity markets fall and client interest to go long equity futures wanes, banks' equity futures desks get overfunded on the margin, which spills over into FX swap market," wrote Pozsar."
