Another October Surprise for Dollar Shorts

FT Alphaville: The BoJ’s questionable success fulfilling the demand for dollars
One interesting point: no one seems to think the main cause of the dollar-funding pressure is a decline in bank creditworthiness. We’re ready to believe that after the latest European stress tests, where most banks came out “in pretty good shape”, according to CreditSights (subscribers only). It’s not a Brexit consequence, either, according to Goldman Sachs.

Instead, it’s apparently being driven by US money-market fund rules that go into effect in October.

Those regulations require prime and municipal money-market funds — meant for institutions investing in short-term commercial and municipal debt — to allow net asset values to float and impose liquidity fees and redemption gates in times of stress. That makes prime and municipal funds less attractive for institutional investors, and gives US fund complexes like Fidelity Investments a good reason to switch their offerings to government-debt and Treasury funds from commercial paper funds.
Do people believe the stress tests? TEN FUN FACTS ABOUT THE EUROPEAN BANK STRESS TESTS
5) Since the imposition of negative rates in Europe (illustrated by the arrow), here is what the SX7E index has done

6) So naturally, the stress tests did not measure the impact of more negative rates, only a move higher in rates

7) This is the equivalent of measuring the impact of a dog whistle on a deaf person

8) More European banks failed the Fed's stress test (DB and Santander) than the EBA version (albeit, as noted, there were not official pass/fail grades this time around.)

9) If you can believe it, DB scored half a percent better on the stress test than Barclays

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