Bloomberg News

Euribor-OIS Spread Widens for Second Day to Highest in 3 Weeks

October 31, 2011

Oct. 31 (Bloomberg) -- A measure of banks’ reluctance to lend to one another in Europe rose to the highest in almost a month amid concern European leaders’ may struggle to contain the region’s debt crisis.

The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, was 79 basis points at 12:37 p.m. in London from 78 on Oct. 28. That’s the highest since Oct. 5 and compares with 89 basis points on Sept. 23, when the measure was its widest since March 2009.

China can’t play the role of “savior” to the euro- region’s debt crisis, the official Xinhua news agency said yesterday after European leaders agreed last week to boost their bailout fund. Investors are awaiting details of the funding plans as the Group of 20 leaders prepare for their Nov. 3-4 meeting in Cannes, France.

“Predictably the froth is blowing off last week’s compromises,” Bill Blain, the co-head of strategy at broker Newedge Group in London, wrote in a note to clients. “We still have to wait for the detail on form and substance, so I wouldn’t be the least bit surprised to see the risk-on relief rally stumble and fall more.”

The cost for European banks to fund in dollars fell. The one-year basis swap, the rate banks pay to convert euro payments into dollars, was 63.5 basis points below the euro interbank offered rate from 64.5 on Oct. 28, according to data compiled by Bloomberg.

The three-month cross-currency basis swap was 92 basis points under Euribor from 93. A basis point is 0.01 percentage point.

ECB Deposits

Lenders increased overnight deposits at the European Central Bank to the highest since Oct. 10. Banks parked 248 billion euros ($348 billion) at the Frankfurt-based ECB on Oct. 28, up from 218 billion euros on Oct. 27. That compares with a year-to-date average of 66 billion euros.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- fell to 1.591 percent from 1.592 percent at the end of last week. One-week Euribor was unchanged at 1.136 percent.

The three-month dollar London interbank offered rate, or Libor, was unchanged at 0.429 percent, according to the British Bankers’ Association. The rate had increased for each of the previous 36 days.

--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;


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