BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History

• BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History
  by Tyler Durden, www.zerohedge.com  
  Over the past several months, one of the biggest conundrums stumping the financial community has been the record negative swap spread which we profiled first in September,  and which as Goldman most recently concluded, “has been driven by funding and balance sheet strains, especially since August.”
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  Today, in its latest quarterly report, the Bank of International Settlement focused precisely on this latest market dislocation.  According to the central banks’ central bank, “recent quarters have witnessed unusual price relationships in fixed income markets. US dollar swap spreads (ie the difference between the rate on the fixed leg of a swap and the corresponding Treasury yield) have turned negative, moving in the opposite direction from euro swap spreads (Graph A, left-hand panel).”
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  Given that counterparties in derivatives markets, typically banks, are less creditworthy than the government, swap rates are normally higher than Treasury yields because of the additional risk premium. Hence, the negative spreads point to a possible dislocation.
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  read more.

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