Bloomberg News

Cost of Swapping Euro Payments to Dollars Falls for Third Day

October 10, 2011

Oct. 10 (Bloomberg) -- A measure of how much European banks pay to fund in dollars declined for a third day, according to a money markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell to 95 basis points below the euro interbank offered rate as of 5:07 p.m. in London, from 98 on Oct. 7, according to data compiled by Bloomberg. That’s the smallest gap since Sept. 19.

German Chancellor Angela Merkel and French President Nicolas Sarkozy will deliver a plan to recapitalize European banks and address the Greek crisis by the Nov. 3 Group of 20 summit. The heads of Europe’s two biggest economies reiterated their intention to keep Greece in the euro region, though left it to international auditors to guide the next steps.

“Things are beginning to move in a positive fashion at a political level,” 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 at 68 basis points under Euribor, from 71 at the end of last week, the smallest gap since Sept. 28. 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 the borrowing benchmark and overnight index swaps was at 71 basis points compared with 72 on Oct. 7. The gauge increased to 89 basis points on Sept. 23, the widest since March 2009.

Overnight Deposits

Overnight deposits at the European Central Bank were at the highest in more than a year. Banks parked 256 billion euros ($345 billion) at the Frankfurt-based ECB, up from 229 billion euros on Oct. 6. That’s the highest since June 2010 and compares with a year-to-date average of 54 billion euros.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- rose to 1.567 percent from 1.566 percent on Friday. One-week Euribor rose to 1.185 percent from 1.178 percent.

The three-month dollar London interbank offered rate, or Libor, rose for a 22nd day to 0.394 percent from 0.391 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 rose to 38.9 basis points, the biggest gap since June 2010.

--Editors: Andrew Reierson, Cecile Gutscher

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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