Overview

Reactive PublishingThe basis trade sits at the intersection of global funding markets, derivatives plumbing, and balance sheet regulation. It is one of the most misunderstood mechanisms in global macro because it does not announce itself in price charts. Instead, it reveals itself through dislocations in swap spreads, cross-currency basis, forward points, and the shadow conversion of foreign collateral into U.S. dollars. The Basis Trade provides a practitioner-focused examination of the modern USD funding stack and how it transmits into FX markets. Through a synthesis of macroeconomics, derivatives engineering, and bank balance sheet constraints, the book explains how the basis is formed, why it fluctuates, and how it trades during stress events. Readers will learn why seemingly arcane BIS charts move billions through cross-currency swaps, why foreign institutions pay to borrow dollars, and how regulatory ratios can invert long-standing arbitrages. Topics include: - USD funding demand and offshore dollar creation - Cross-currency swap mechanics and pricing - Forward points and spot convergence behavior - GSIB balance sheet constraints, LCR, SLR, and HQLA effects - Central bank swap lines and emergency dollar provision - Dealer intermediation capacity and basis risk - Eurodollar market evolution and shadow banking channels - Stress case studies (2011-2012 Euro crisis, 2016 JPY dislocation, 2020 pandemic liquidity freeze, 2022 energy shock) - How basis distortions bleed into spot and forward markets - The economics of funding arbitrage and who actually captures it Designed for global macro traders, FX professionals, fixed-income strategists, and students of international finance, The Basis Trade demystifies a hidden but foundational component of modern market structure. It bridges the gap between central bank research, BIS plumbing papers, and the day-to-day realities of trading USD funding across jurisdictions. By explaining not only how the basis works, but why it exists, the book equips readers with the framework to interpret cross-border liquidity, funding stress, and the mechanics that increasingly drive global macro pricing in the twenty-first century.

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