Bloomberg News

Cost of Swapping Euro Payments to Dollars Rises to 3-Week High

October 03, 2011

Oct. 3 (Bloomberg) -- The rate banks pay to convert euro payments into dollars rose to a three-week high, according to a money markets indicator, as European finance ministers meet on resolving the region’s debt crisis.

The three-month cross-currency basis swap was 109 basis points below the euro interbank offered rate as of 2:52 p.m. in London, compared with 105 basis points on Sept. 30. The cost was 112.5 basis points under Euribor on Sept. 12, when the swap was the most expensive since December 2008.

Policy makers meeting in Luxembourg today are considering expanding a euro area rescue fund after Greece missed a deficit target for 2012. Greece said yesterday it approved new austerity measures to cut the country’s budget gap and secure an international bailout.

“The markets are beginning to worry” that Greece’s latest disbursement may “not be forthcoming,” Padhraic Garvey, head of developed debt-market strategy at ING Groep NV in Amsterdam, wrote in a note.

The one-year cross-currency basis swap was little changed at 73 basis points less than Euribor from 72 on Friday. A basis point is 0.01 percentage point.

A measure of banks’ reluctance to lend to one another in Europe was little changed. The Euribor-OIS spread, the difference between three-month Euribor and overnight index swaps, was 81 basis points, Bloomberg data show. The gap reached a 2 1/2-year high of 89 on Sept. 23.

Deposits Increase

The ECB said financial institutions increased overnight deposits to the highest since July 12, 2010. Banks left 199.6 billion euros ($267 billion) with the Frankfurt-based lender on Friday, the ECB said, compared with 161 billion euros on Sept. 29 and a year-to-date average of 53 billion euros.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- increased to 1.557 percent from 1.554 percent on Sept. 30. One-week Euribor fell to 1.197 percent from 1.208 percent.

The three-month dollar London interbank offered rate, or Libor, rose for a 17th day to 0.378 percent from 0.374 percent, according to the British Bankers’ Association. That’s the highest since Aug. 11, 2010.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, rose to 37 basis points from 35 at the end of last week.

--With assistance from Abigail Moses in London. Editors: Andrew Reierson, Cecile Gutscher

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net


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