Dollar/yen DLR financing needs reports see intact

Posted by yan manik Sunday, January 16, 2011 0 comments
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SINGAPORE, Dec 27 (Reuters) - Dollar borrowing costs implied by one-month dollar/yen forwards edged higher on Monday, reflecting persistent dollar funding needs ahead of quarter-end and year-end book closings.

The dollar discount on one-month dollar/yen forwards or FX swaps widened a bit to a bid rate of minus 4.40 compared to minus 4.15 late last week.The dollar discount on one-month dollar/yen forwards had stood at minus 0.36 at one point in mid-November, but has widened since then, and expanded to as much as minus 5.46 in early December, the widest in more than five months.While actual flows were limited on Monday, current levels of one-month dollar/yen forwards do show that year-end dollar funding needs persist, said an FX forwards trader for a European bank in Tokyo.A wider dollar discount implies a rise in dollar funding costs via dollar/yen FX swaps, which effectively allow banks to borrow dollars in exchange for yen as collateral.The trader for a European bank in Tokyo said the moves in dollar/yen forwards in recent weeks were likely due to seasonal dollar funding interest among Japanese players including Japanese banks.While there have been some signs of dollar borrowing in dollar/yen FX swaps by non-Japanese financial institutions recently, it was hard to tell whether such flows reflected their own funding needs or were done on behalf of their customers, the trader said.With global financial institutions reluctant to expand their balance sheets ahead of year-end book closings, market liquidity tends to drop in December, and that can help exacerbate rises in dollar funding costs.Worries that a selloff in higher-yielding euro zone debt over the past couple of months may take a heavy toll on the region's banks have left dealers hungry for dollar funding and also contributed to a rise in dollar borrowing costs in recent weeks, analysts have said.

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