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A 21 percent discount was agreed in July by public creditors in a 135 billion euro swap in the second bailout.
In the place of shallow and illiquid swap markets in Belgian francs, Italian lira, Dutch guilder and so forth, Europe suddenly had a deep and liquid euro swap market.
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Euro swap-spreads have risen in recent weeks, but dollar swap-spreads have widened dramatically.
Everyone is usually polite, as a senior euro swaps trader asked on Aug. 14, 2006: "We have some big fixings today.
Swap rates are replacing Treasury yields as the benchmark for credit markets, as I reported in a recent column (see "Euro swaps and the Nile perch," Nov. 1).
Yes, the ECB prints (supplies) money and the amount it prints impacts the rate at which a euro swaps for a dollar – the exchange rate.
The Fed and the ECB started their first dollar-euro swap arrangement in December 2007 as the losses on mortgage-backed bonds began to shake the banking system.
No longer are US companies only tempted to issue euro-denominated debt to finance their European operations; they can issue debt in euros and swap it back into dollars.It is hard to imagine that US companies will ever be able to borrow so cheaply again.
By comparison the yield on a five-year euro mid-swaps has gone to 1.19% from 0.61%.
American Express, for instance, last March did a Euro-yen swap in which 20 billion yen were raised and then swapped into $109 million.
Rather than tackle serious issues, such as how to keep Greece in the euro, they swapped insults and shrugged off a warning that a bank run was imminent.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com