Despite this week's largest allotment to the ECB's 7-day tender in over 2 months, ECB collateral changes, a flat LIBOR, and endless game-changing summit conclusions, the market's most accessible source of term USD financing (the EUR-USD basis swap) has collapsed to its worst level in over three months. Even as the sovereign and bank spreads have compressed in the last few days, demand for this short-term financing has soared (i.e. banks are willing to pay quite a penalty for that access). Whether this is a cleaner signal than Lie-bor is unclear </sarc> but for sure between this and the fact that 2Y Swiss rates are reverting lower once again, all is clearly not well in Europe (despite what every talking head tells you) and these remain the two most critical stress indicators for now.
While the 3-Month EUR-USD basis swap is at 3-month worst levels, it is still notably off of peak-crisis mode levels - but the trend is disconcerting when all is supposed to be fixed...
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and 2Y Swiss rates have reverted back lower and safety bids remain very active...
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Charts: Bloomberg