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Market Discounts Big Resolution Fee Effect In FRADEC17

Published 05/04/2017, 09:28 AM
Updated 05/14/2017, 06:45 AM

Receive FRA SEP17 and MAR18 against paying DEC17 @ -19.5bp. P/L: -8bp/-25bp.

In both 2015 and 2016 the market pushed 3MSTIBOR fixings considerably lower in December amid year end resolution fund fees (together with implied lower 3mSTIBOR via USD LIBOR and the FX forward market, i.e. a more expensive USD). The effect has been more or less isolated to Swedish interbank fixings, with no trace of such effects either in EURIBOR or in USD LIBOR fixings. The reason for this effect in Swedish interbank rates is that fees for the resolution fee are calculated in a way that makes it expensive for banks to bolster the balance sheet, i.e. to receive deposits over year-end.

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