Libor's Ascent Is New Culprit for Hedged Treasury Yields Near 0%
- For euro-, yen-based buyers, cost to shield FX swings rises
- But one big change: the cross-currency basis is not to blame
Pedestrians pass 30 South Colonnade, centre, where the London interbank offered rate, or Libor, is set daily in Canary Wharf, London. Photographer: Gill Allen/Bloomberg
Photographer: Gill Allen/Bloomberg
A phenomenon rippling through global funding markets is poised to keep overseas investors wary of Treasuries just as the U.S. needs them most.
It starts with the London interbank offered rate, among the most-watched benchmarks in finance lately. The rate on the three-month maturity has climbed for 36 straight sessions, raising the baseline for many bonds, loans and mortgages. The surge has also made it much more expensive for European and Japanese investors to buy Treasuries and hedge out currency risk. The main reason: Paying U.S. Libor is part of such transactions.