The Wheatley Review - amongst the general amount of liquidity everywhere - has driven Libor fixings down as banks crowd for fear of getting sued and given the fact that US Financial CP rates are around 15bps, there's certainly the argument that Libor should be lower given the concept of bearing some resemblance to "market-traded" rates. The trouble is, the Libor spikes of the past couple of years have never been about US banks: instead, by the marginal borrower from Europe, and the overall rate is going to be a blended average of all these borrowers. The chart below shows the US Financial CP rate (orange) as a proxy for US banks, Natixis 90d USD CP (red line) as a proxy for the higher-quality banks in core-Europe issuing directly in the US, the rate implied from borrowing at 3m Euribor domestically and swapping into USD (for those European banks that are able to borrow privately in Europe, but not directly in the US), the rate implied from borrowing at the ECB's MRO/LTRO and then swapping into USD (for those banks that are unable to borrow from anyone apart from the ECB). Obviously, since Draghi's game-changing speech, all of these measures have moved lower. The question is, how much lower can these now move, given the dramatic normalisation seen so far?
Putting all of the above together, TMM reckon buying 2yr Swap Spreads in the US, buying 2yr Notes outright (assuming Ben keeps his promise) and buying 2yr Notes vs. Schatz all look like reasonable ways to get some tail hedges on the book.