Funding Panic Imminent? Fed Quietly Sends $3.1 Billion To Switzerland Via Swap Line

BofA Chief Investment Strategist Michael Hartnett has a favorite markets phrase that may be the only one a trader in this day and age needs: “Markets stop panicking when central banks start panicking.”

Well, in what may be the best news to shellshocked bulls after the worst September and worst Q3 in generations, in a harrowing year for markets, central banks are starting to panic. First it was the BOJ, then the BOE and now, it’s Switzerland’s turn.

Two weeks ago after the (first) panicked pivot by the BOE, when global markets were in freefall, we said that markets desperately needed some words of encouragement from the Fed, or failing that – and with the dollar soaring to new all time highs every day – the Fed had to make some pre-emptive announcement on USD Fx swap lines, if only to reassure global markets that amid this historic, US dollar short squeeze, at least someone can and will print as many as are needed to avoid systemic collapse.

Fed has to issue FX swap line press release before open

— zerohedge (@zerohedge) September 26, 2022

Fast forward two weeks when there still hasn’t been any formal announcement from the Fed, but every so quietly – and just as we expected – the Fed shuttled $3.1 billion to the Swiss National Bank to cover an emergency dollar shortfall.

Remarkably, this was the first time the Fed sent dollars to the SNB this year, and the first time the Fed used the swap line in size (besides a token amount to the ECB every now and then)!

The next logical question obviously is: why does Switzerland suddenly have a financial institution needing $3 billion in cheap (3.33%) overnight funding. We don’t know the answer, but have a pretty good idea of who the culprit may be.

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