SEOUL - The cost of raising U.S. dollars by swapping the South Korean won surged to a 6-year high on Friday as demand for dollar funding surged among local brokerages due to the hit from the coronavirus pandemic.
The won-dollar one-year basis swaps widened to -155.0 basis points on Friday from a low of -73.3 on March 5, the most negative since January 2014, indicating investors are paying a much higher premium than usual to secure dollars.
"Because of the global markets rout, there's margin calls, meaning (Korean) securities companies are asked to deposit additional money to keep their overseas assets and investments abroad. This is pushing up dollar demand for short-term use," a local FX dealer told Reuters.
The won-dollar currency basis spread indicates the premium Korean financial institutions need to pay on top of dollar LIBOR.
A finance ministry official said authorities are closely monitoring the FX swaps market although they see no dollar shortage among local banks just yet.
"There seems to be temporary herd-like behaviour in cross currency swap market, mostly from instabilities. There is no problem with FX liquidity."