Scaling the peaks on 3s/6s basis

Some banks are drawing attention to a widening in the basis between three-month and six-month Euribor, as financial institutions are forced to use longer-term funding to eliminate mismatches on their balance sheets. How are banks responding? By Duncan Wood

The sky-scraping peaks of the Himalayas began to form around 50 million years ago – formerly flat land buckling as the Indian and Eurasian plates collided to create a new, terrifying landscape. Somewhat more recently, a similar thing happened to the spread between the three-month and six-month points on the interest rate curve. Prior to the start of the crisis, a graph of what traders call the ‘3s/6s basis’ looked a bit like a cross-section of the Dutch countryside – pancake-flat, with six-month