Fed Announces "Enhanced" Central Bank Swap Lines To Ease Dollar Funding Shortage

With the Fed throwing the kitchen sink at the global dollar funding shortage problem, and failing to make much of a dent on the renewed surge in the dollar, last night we said that we expect even more aggressive swap lines with global central banks to be revealed by the Fed in the coming days in hopes of easing the $12 trillion dollar margin call.

That happened moments ago when the Fed announced a new round of "enhanced" central bank swap lines with the 5 big central banks, where the biggest difference from the swap lines announced over the weekend is that the frequency of the swap line will increase from weekly to daily.

According to a press release by the Fed, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.

To improve the swap lines' effectiveness in providing U.S. dollar funding, these central banks have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 23, 2020, and will continue at least through the end of April. The central banks also will continue to hold weekly 84-day maturity operations.

The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.

Keep an eye on the DXY or BBDXY to see if the market is impressed by this latest development; the good news is that in kneejerk reaction, the FRA/OIS tumbled by about 8 bps, although it has a long way to go before it normalizes.