Pozsar Plumbing View Supports EDZ0

Outperformance for the EDZ0 contract, last +1.5. This is being tied to a note from influential funding market watcher Zoltan Pozsar of Credit Suisse, who has suggested that "with the Fed's standing repo and FX swap facilities, any funding pressure coming from balance sheet constraints will be capped at IOR + 5bps and OIS + 25 bps, respectively, for what will likely be a muted year-end turn in funding markets." Pozsar had previously warned of the potential for "a year-end turn much worse than what's currently being priced by the market - unless U.S. banks with lower G-SIB scores or foreign banks pick up the slack." His change of tact comes in the wake of comments made by the J.P.Morgan CFO at a Barclays conference, which revealed that the bank will run at a 4.0% G-SIB surcharge at year-end, up from 3.5% last year, avoiding a bigger jump. Pozsar noted that "this bit of information suggests that funding market volatility at year-end will be low, as the bottlenecks that usually drive such volatility - G-SIB score inflation and banks' efforts to counter them by shrinking their market making activities - won't be present in the FX swap market and bank funding markets this year."