Contained Signs Of USD Funding Worry Potentially Seen In Asia

USD funding matters got some attention in Asia. We flagged the spill over into x-ccy basis in the wake of the initial round of NYC Bancorp worry (as footprints of USD demand showed up via those channels). That move evaporated (in 3-month tenors), but a fresh, albeit shallow, downtick in JPY/USD 3-month x-ccy basis has been seen, pointing to some potential worry on that front out of Tokyo.

• A large block buy (+20K) in SFRH4 futures was also seen in Asia-Pac hours, which could point to further USD funding-related worry in the region given that 20K SOFR blocks are a very rare sight in that timezone.
• A reminder that Japanese lender Aozora Bank has fallen afoul of its U.S. CRE exposure, with the company’s Tokyo equity listing losing over 30% in recent sessions. Japanese Finance Minister Suzuki has attempted to placate any worry re: overall Japanese exposure to those issues, stressing that lending to the U.S. real estate market is limited when you look at the totality/size of the Japanese banking sector.
• Pockets of U.S. CRE-related worry have also shown up in European financial names with related exposure in recent sessions.
• Once again, ee highlight that the moves seen in major USD x-ccy measures were limited last week and quickly unwound.
• The moves were also very shallow when compared to swings seen during the initial COVID outbreak and during last year’s U.S. regional banking sector malaise.
• They were also limited when compared to most instances of year end-related (turn) USD demand.
• We have suggested on several occasions that the headwinds faced by NYC Bancorp do not seem to be systemic in isolation, although worry re: U.S. CRE exposure will continue to provide a point of interest owing to the post-COVID evolution of home-office work splits.
• NYC Bancorp saw Moody’s downgrade the name to junk status after hours on Tuesday.
• The U.S. regional banking index KBW has shed a little under 5% vs. late January closing highs, with the index failing to get anywhere totally recouping the ’23 downturn.

Source: MNI - Market News/Bloomberg