🌐 A Possible Summer Of Carry In FX Swaps: UBS

• It has been a rather quiet start to the week despite the FOMC meeting tomorrow and month-end. The market remains flush with USD, as is evident via the continued uptick in the number of participants utilizing the Fed's overnight reverse repo program facility.

• On Friday, the major central banks published releases stating the 84-day swap lines would end on July 1, while the seven-day operations would continue through Sept. 30.

• Overall, the desk does not believe this will be an issue for the market as these were first introduced during a time when reserves were scarce ($1.5 trn) versus roughly $4 trn in reserves now.

• The desk doubts the upcoming debt ceiling deadline (July 31) will be resolved ahead of time, meaning the Treasury will need to drain the TGA further and bills will likely richen even further (if that is even possible). All of this points to a summer of carry in the FX swap space (i.e. tighter FX/Ois basis).