A surge of yen-denominated bonds by foreign nationals and a perceived reduction in dollar supply are making it costlier to swap yen funds to the U.S. currency.
Three-month basis swaps for dollar-yen dropped to negative 53.5 basis points on Thursday, a level not seen since November 2023, meaning investors using yen to obtain dollar funding had to accept steeper discounts on Japanese interest rates. Five-year swap contracts fell to the lowest in almost two months this week.
A lack of dollars helped drive down short-dated basis swaps, while rising issuances of samurai bonds impacted longer swaps, according to Shoki Omori, chief desk strategist at Mizuho Securities Co.
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