Basis swap landmark reached for euro, but is resilience now a hindrance?
Last week the 1y EUR/USD basis swap traded above zero for the first time post crisis. In other words, euro funding (when swapped against dollars) now comes at a premium, whereas the opposite was true throughout the last few years as financial entities scrambled for dollars at every hint of risk aversion. We leave the specific behind the move to our interest rate colleagues, but for the euro as a currency, is reaching the basis swap landmark a sign of market complacency regarding endogenous financial risk, and is the falling risk premium too much of a good thing?
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