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Watch These Three Measures as Ukraine Invasion Triggers Liquidity Fears

  • Money-market gauges show some concern about systemic liquidity
  • Cross-currency basis swaps show heavy demand for dollar
Ukrainian service members look for unexploded shells after fighting in Kyiv on Feb. 26.

Ukrainian service members look for unexploded shells after fighting in Kyiv on Feb. 26.

Photographer: Sergei Supinsky/AFP/Getty Images

Concern that Russia’s invasion of Ukraine could impinge on systemic liquidity is evident from several key markers that may be useful to watch in the coming weeks.

The spread between three-month Libor rates and the comparable T-bill rate has widened to about 20 basis points from as little as about two basis points earlier this month. The widening differential is a measure of counterparty risk and a sign that lenders fear that the prospect of a default in interbank loans is rising. The increase doesn’t necessarily suggest that a shoe is about to drop somewhere, but is rather a sign of abundant caution among traders in an environment such as this. During the first wave of the pandemic, the spread reached about 150 basis points.