Strategist Steve Kang at Citi addresses....>

US SWAPS: Strategist Steve Kang at Citi addresses the widening of the FX swap

rates, which he believes is impacting libor-OIS spreads. 3m bases in the JPYUSD

and EURUSD widened by -19bp and -13bp respectively last week.

- According to Kang, "The model-based LIBOR submission, which accounts for about

70% of the submitted rates for 3M, has FX forwards as allowable inputs...Given

the strong widening momentum this week, we don't have a strong argument against

further 2-3bp widening that is expected by Z7 FRA/OIS and ED - around 150bp". 

- Kang calculated that most of the widening is in the 'year end turn', "The

relative wideness of EUR vs JPY seems to be related to relative collateral

scarcity". whereas, the general widening in the bases is linked to the more

usual lack of dollar supply as banks shrink their balance sheets to flatter

regulatory and annual reports.