So that's the wonkish stuff out of the way. In the real world, these effects are usually dwarfed by longer-dated issuance being swapped between currencies for yield pickup by corporates and supra-nationals in the case of the medium/long-end, while in the short term by the immediate short-term funding needs of the banking system. The poster child for this was the EUR/USD 3m Basis (see chart below)in the immediate aftermath of the Lehman bankruptcy as foreign banks struggled to fund their USD assets via the FX Swap/Basis Swap markets. The EUR/USD basis moving negative has thus evoked memories of USD-funding shortages, most recently in late-April/May as concerns about the solvency of the European banking system in the presence of possibly insolvent sovereigns came to the fore.
