Bloomberg News

Euribor-OIS Spread Tightens to Narrowest in Almost Five Weeks

October 06, 2011

Oct. 6 (Bloomberg) -- A measure of banks’ reluctance to lend to one another in Europe declined to the lowest since Sept. 2, according to a money markets indicator.

The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, fell to 73 basis points at 4:27 p.m. in London, from 82 yesterday. That compares with 89 basis points on Sept. 23, when the measure was the widest since March 2009.

The European Commission proposes “coordinated action to recapitalize banks” and rid them of toxic assets, President Jose Barroso said today. The European Central Bank left interest rates unchanged at 1.5%, while the Bank of England bank expanded its bond-purchase plan for the first time in almost two years.

A measure of how much European banks pay to fund in dollars fell. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, declined to 102 basis points below the euro interbank offered rate, from 110 yesterday, according to data compiled by Bloomberg. The gap was 112.5 basis points on Sept. 12, when the swap was the most expensive since December 2008.

The one-year cross-currency basis swap was at 70 basis points under Euribor, down from 72 yesterday. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the European Central Bank to the highest in more than a year. Banks parked 221 billion euros ($294 billion) at the Frankfurt-based ECB yesterday, up from 213 billion euros on Oct. 3. That’s the highest since July 2010 and compares with a year-to-date average of 55 billion euros.

Loans in Euros

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- fell to 1.556 percent from 1.558 percent yesterday. One-week Euribor fell to 1.155 percent from 1.17 percent.

The three-month dollar London interbank offered rate, or Libor, rose for a 20th day to 0.388 percent from 0.384 percent, according to the British Bankers’ Association. That’s the highest since Aug. 10, 2010.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, was 38.8 basis points from 38.4 yesterday, the biggest gap since July 2010.

--Editors: Andrew Reierson, Michael Shanahan

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