Dollar, yen funding costs stay elevated

Concerns about the growing ranks of loss-making banks outweighed optimism over Washington's stimulus plans and extension of credit lines to markets worldwide, keeping dollar funding costs elevated in Asia.

Meanwhile, Indonesia's central bank cut rates by a further 50 basis points, causing rupiah interbank rates to drop.

Japanese money markets barely felt any respite from a central bank offer this week to buy $11 billion (Dh40.4bn) worth of shares from banks, with yen interbank rates staying at the high levels they have been at through January.

Three-month yen Tibor was at 0.72 per cent, and Japanese government bond repo rates remained above the Bank of Japan's 0.1 per cent policy rate.

The BoJ's latest measure was a revival of a stock buying scheme it had earlier this decade, and followed a string of measures including plans to buy government and corporate bonds and commercial paper.

"The impact on Tibor, on the whole curve is quite limited. Unlike in the early part of this decade, the Bank of Japan seemed reluctant to commit to keeping rates low for a long time, and instead appeared keen on reaching out to corporations," said Atsushi Ito, a fixed income strategist at Morgan Stanley in Tokyo.

US dollar funding markets in Singapore were quoting three-month dollars at 1.244 per cent, up from 1.23857 per cent on Tuesday after a steady rise from 1.09 per cent in mid-January. Eurodollar futures were pricing in three-month Libor at 1.25 per cent by March.

The three-month OIS spread, the spread between interbank rates and overnight-indexed swaps, also widened to 99.5 basis points and pointed to expectations of widening spreads between interbank and policy rates.

The Federal Reserve said it was extending up to October swap lines it had with 13 central banks, through which it provides dollars.

But these attempts to keep greasing the world's money markets failed to bring down dollar funding costs, whose rise has affected funding markets in Singapore, Thailand, Hong Kong and South Korea.

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