Bloomberg News

European Banks’ Dollar Funding Costs Decline to Six-Month Low

February 03, 2012

Feb. 3 (Bloomberg) -- The cost for European banks to borrow in dollars fell for a fourth day to the lowest in six months, according to a money-market indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 68 basis points below the euro interbank offered rate at 11:49 a.m. in London, according to data compiled by Bloomberg. That’s the lowest cost since Aug. 5 and compares with minus 69 yesterday.

The one-year basis swap held near the lowest cost in five months. The measure was little changed from yesterday at 59 basis points less than Euribor, the narrowest gap since Sept. 5. A basis point is 0.01 percentage point.

A measure of European banks’ reluctance to lend to one another was little changed. The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, held near 76 basis points, the lowest since Oct. 21.

Lenders increased overnight deposits at the European Central Bank, placing 488 billion euros ($642 billion) with the Frankfurt-based ECB yesterday from 486 billion euros on Feb. 1.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 1.102 percent from 1.108 percent. One-week Euribor dropped to 0.387 percent from 0.391 percent.

The London interbank offered rate, or Libor, for three- month dollar loans fell to 0.527 percent from 0.531 percent.

--Editor: Andrew Reierson

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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