the balance sheet effect

Financial institutions and companies make sure they’re funded over the year-end.

This has become known as the “balance sheet effect”.

I’m pointing out the salient points of the article Dollar Hoarding Is a Year-End Risk for Markets from

The hoarding of dollars puts a squeeze on demand for the greenback. This can have a negative impact on the markets. This effect may be greater this year because of the tax bill and debt ceiling debate going on in the U.S. Congress.

The dollar has strengthened from 3 percent to 5 percent against other major currencies since early September. There’s the potential for a strong dollar to drive up short-term interest rates even further. Credit spreads may widen as dollar rates rise.


Some dollar scarcity is expected because of an increase in the federal budget deficit and with the Federal Reserve shrinking its balance sheet. To fund the deficit, the U.S. Treasury Department has indicated it will issue more short maturity debt.

The yields on Treasury bills and notes are being pushed significantly higher than unsecured borrowing rates such as Libor. Demand for dollars also continues to come from investors in Europe and Japan as demand for dollars from companies in those countries seek the U.S. currency over year-end.


Published by mikebertelsen

Global market, trade, and financial news. I keep up to date with what I assess is important.

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