The results show that, relative to other currencies, those currencies with announcements related to standing and temporary swap lines did not have significantly narrower FX swap basis spreads on and after announcement dates. By contrast, the announcement of the increased frequency of one-week U.S. dollar operations lowered the rate of increase in the FX swap basis spreads for currency pairs of countries with the standing swap lines, as compared to the changes observed in FX swap basis spreads of other currency pairs. In other words, this announcement improved market conditions on the announcement day, relative to conditions over the prior two days.
Did the actual settlement of funds from U.S. dollar operations, whether at the one-week tenor or at the eighty-four-day tenor, have materially different effects on the FX swap basis spreads of currency pairs of the standing swap central banks versus those of all other currencies? After controlling for the effects of concurrent equity market volatility, we find that only the settlements of daily one-week auctions on one-week FX swap basis spreads improved market conditions. In contrast, settlements of one-week and eighty-four-day operations were not associated with significant improvements in market functioning as initially term liquidity obtained by banks was only partially channeled beyond the banking system.
The full article is available at https://libertystreeteconomics.newyorkfed.org/2020/05/have-fed-swap-lines-reduced-dollar-funding-strains-during-the-covid-19-outbreak.html