Bloomberg News

Dollar Funding Costs Fall for Europe Banks, Money Markets Show

December 30, 2011

Dec. 30 (Bloomberg) -- The cost for European banks to borrow in dollars declined to the lowest in three weeks, according to a money markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, declined to 114 basis points below the euro interbank offered rate at 1:26 p.m. in London. That’s the lowest since Dec. 7 and compares with minus 118 basis points yesterday, data compiled by Bloomberg show. The measure ended 2010 at 60 basis points under the benchmark.

The one-year basis swap was minus 98 basis points, compared with minus 101 basis points yesterday. The cost has increased from 49 basis points under Euribor at the end of last year. 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 97 basis points from 98 yesterday. It was at 101 basis points on Dec. 1, the biggest gap since January 2009.

Lenders increased overnight deposits at the European Central Bank, placing 446 billion euros ($578 billion) with the Frankfurt-based bank yesterday, near a record 452 billion euros reached on Dec. 27 and up from 437 billion euros yesterday.

--Editor: Paul Armstrong

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net


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