Bloomberg News

Euribor-OIS Spread Measure Increases to Highest Level in Week

October 13, 2011

Oct. 13 (Bloomberg) -- A measure of banks’ reluctance to lend to one another in Europe rose to the highest since Oct. 5, according to a money markets indicator.

The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, increased to 76 basis points at 4:18 p.m. in London, from 74 yesterday. The rate reached 89 basis points on Sept. 23, the widest since March 2009.

The European Central Bank said today that forcing investors to take losses in bailouts would have “direct negative effects” on banks. European Commission President Jose Barroso will speak today in Brussels after calling yesterday for a “coordinated approach” to recapitalize the region’s lenders.

“Banks being forced to raise capital levels in the midst of crisis will result in de-leverage,” Bill Blain, a strategist at broker Newedge Group in London, wrote in a note. “Reduced lending will further damage Europe’s anaemic growth prospects, thereby exacerbating the sovereign debt crisis.”

A measure of how much European banks pay to fund in dollars rose. The one-year cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 64.5 basis points below the euro interbank offered rate from 64 yesterday, according to data compiled by Bloomberg.

The three-month cross-currency basis swap was little changed at 92 basis points under Euribor. A basis point is 0.01 percentage point.

ECB Deposits

Overnight deposits at the European Central Bank rose. Banks parked 105 billion euros ($145 billion) at the Frankfurt-based ECB yesterday, down from 62 billion euros on Oct. 11. That compares with a year-to-date average of 58 billion euros.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- rose to 1.572 percent from 1.571 percent yesterday. One-week Euribor fell to 1.181 percent from 1.186 percent.

The three-month dollar London interbank offered rate, or Libor, rose for a 25th day to 0.403 percent from 0.401 percent, according to the British Bankers’ Association. That’s the highest since Aug. 9, 2010.

The TED spread, or the difference between what lenders and the U.S. government pay to borrow for three months, was little changed at 39 basis points.

--Editors: Andrew Reierson, Michael Shanahan

To contact the reporter on this story: 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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