Bloomberg News

Euribor-OIS Spread Falls From 2 1/2-Year High on ECB Rate Cut

November 04, 2011

Nov. 4 (Bloomberg) -- The Euribor-OIS spread, a measure of banks’ reluctance to lend, fell from its widest level in two 1/2 years after the European Central Bank unexpectedly lowered its benchmark interest rate.

The spread, the difference between the euro interbank offered rate and overnight index swaps, was 89 basis points at 11:13 a.m. in London from 98 yesterday, when the measure was the highest since March 2009.

The ECB lowered interest rates by 25 basis points to 1.25 percent yesterday. Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- fell to 1.488 percent from 1.580 percent. One-week Euribor dropped to 1.028 percent from 1.136 percent.

The cost for European banks to fund in dollars also declined. The one-year cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 64 basis points below Euribor from minus 71, according to data compiled by Bloomberg.

The three-month basis swap was 103 basis points under Euribor from minus 108 yesterday. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the ECB to the highest level in more than 16 months.

Banks parked 275 billion euros ($380 billion) with the Frankfurt-based ECB yesterday, up from 253 billion euros on Nov. 2. That’s the most since June 30, 2010.

--Editors: Michael Shanahan, Paul Armstrong

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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