An indicator of dollar funding stress, the three-month euro dollar cross currency basis swap, has been widening and unless the ECB announces another short-term LTRO, the indicator is unlikely to tighten, says Valery Gombert at Natixis. The ECB could take action after the results of the Greek election are announced or if Moody's expected downgrades of banks create additional funding pressure, he said. At the moment, there is no expectation that the central bank will announce a long-term LTRO. "It would be a major surprise if they announced a short-term LTRO, but what could be more on the table would be an interest rate cut or leaving the door open for one." The basis swap is at -55bps on Mon, about the same as Fri.
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