Dollar funding rate falls

The cost of dollar funding in Asia slipped further on Monday extending its near 2 week falling streak while New Zealand swaps dipped on data that supported the central bank's pledge to keep interest rates low. In Hong Kong, interbank rates remained soft as the banking system was flush from the recent intervention in the currency market.
In Singapore, interest rates on 3-month dollars fell to yet another record low of 0.81333 percent from Friday's 0.84714 percent, as global money market benchmarks tumbled. Three-month dollar Libor slipped to 0.82563 percent on Friday, another record low, from 0.85438 percent on Thursday, and in the interest rate swaps market, the cost to exchange two-year fixed-rate dollars for floating-rate ones fell to their lowest since May 2007.
But some analysts say rates appear to be nearing bottom and a significant decline from these levels would need major pronouncements from policy makers. "The LIBOR coming down is enticing people to return to markets but I don't see it (LIBOR) going down a lot more from these levels," said Suresh Ramanathan, a strategist with CIMB Bank.
Stock markets have rallied with the improvement in risk appetite as investors bet the global economy freefall has bottomed out. The MSCI index covering Asia ex-Japan has surged 53 percent from its 2009 low on March 4 to its yearly high on May 11.
Swap rates were softer along the curve, with two year swaps at 3.36 percent and five-year swaps at 4.66 percent. Swap rates have slowly eased back towards levels in late April when the central bank pledged to keep rates low until late next year. They spiked in March and early April as investors priced in an end to the central bank's easing cycle.
"So the inflationary burst we got from commodity prices is unwinding which is helpful, it allows the Reserve Bank to ease with less concern," said Robin Clements, senior economist with UBS. In Hong Kong, the three-month Hibor was fixed at 0.52143 percent - its lowest level since early January 2005 and down 2 basis points from Friday.
The intervention lifted the aggregate balance - the sum of balances on clearing accounts maintained by banks with the HKMA - to a record HK$256.97 billion on Monday. The Hong Kong currency is pegged at 7.80 to the US dollar but can trade between 7.75 and 7.85. Under the currency peg, the HKMA is usually obliged to intervene when the Hong Kong dollar hits 7.75 or 7.85 to keep the band intact.