What causes a negative cross-currency basis?

A negative basis on the USD cross (e.g., EUR-USD) means USD demand exceeds supply in the swap market, reflecting scarce dollar funding for non-US banks. Post-2008 regulations limited bank capacity to arbitrage this away. The 2020 COVID-19 shock briefly pushed EUR-USD 3-month basis to -130 bps.

How do corporates use cross-currency basis swaps?

A European company issuing USD bonds and swapping proceeds to EUR via a XCCY basis swap obtains EUR funding at sub-EURIBOR cost when basis is negative (USD premium). This synthetic EUR funding can be cheaper than direct EUR bond issuance. Banks intermediating these swaps charge basis-adjusted spreads.

Currency Basis Swap Funding Advantage

Calculate the cross-currency basis swap spread advantage for borrowing in one currency and converting to another via FX swap versus borrowing directly in the target currency, reflecting cross-currency funding premiums.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How to Use

Enter the values for the scenario you are assessing. Calculate the cross-currency basis swap spread advantage for borrowing in one currency and converting to another via FX swap versus borrowing directly in the target currency, reflecting cross-currency funding premiums. Use the currency basis swap result to inform your calculation.

Related Calculators

Covered Interest Parity

Finance Long-tail

FX Forward Rate