Bloomberg News

Dollar Funding Cost Drops for Second Week in Euro Money Markets

January 09, 2012

Jan. 6 (Bloomberg) -- The cost for European banks to borrow in dollars is headed for its second weekly decline, according to a money-markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was at 102 basis points below the euro interbank offered rate at 10:51 a.m. in London, gaining 12 basis points this week. The swap rate added 13 basis points in the week ended Dec. 30, indicating lowered cost of borrowing.

The one-year basis swap was 88 basis points less than Euribor, from minus 98.5 at the start of the week, data compiled by Bloomberg show. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the European Central Bank to an all-time high, placing 455 billion euros ($582 billion) with the Frankfurt-based ECB yesterday, up from 444 billion euros on Jan. 4.

A measure of banks’ reluctance to lend to one another in Europe fell. The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, dropped 4 basis points this week to 93.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 1.288 percent from 1.356 percent at the start of the week. One-week Euribor dropped to 0.564 percent from 0.677 percent at the start of the week.

--Editor: Michael Shanahan

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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