Bloomberg News

Euribor-OIS Spread Falls for Seventh Week in Euro Money Markets

February 17, 2012

Feb. 17 (Bloomberg) -- A measure of European banks’ reluctance to lend to one another fell for the seventh week as the European Central Bank’s three-year lending program continued to buoy the region’s lenders, a money-markets indicator shows.

The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was 69 basis points at 10:40 a.m. in London, the lowest level since Sept. 1, data compiled by Bloomberg show. It has declined every week since the start of the year, when the measure was 97.

The ECB injected 489 billion euros ($639 billion) into the financial system in December, creating confidence in the banking sector and sending borrowing costs lower. The Frankfurt-based ECB will hold a second so-called longer-term refinancing operation on Feb. 28.

“The LTROs have inspired a degree of confidence that the whole of the European banking sector may be fixable,” said Bill Blain, a strategist at Newedge Group in London.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 71 basis points below Euribor from minus 72 yesterday, data compiled by Bloomberg show. The measure was 68 below Euribor on Feb. 13, the lowest cost in six months.

The one-year basis swap was little changed at 64 basis points less than Euribor. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the ECB yesterday, placing 417 billion euros with the Frankfurt-based central bank from 392 billion euros on Feb. 15.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, declined to 1.036 percent, from 1.041 percent. One-week Euribor fell to 0.368 percent from 0.371 percent.

--Editor: Andrew Reierson, Paul Armstrong

To contact the reporter on this story: Katie Linsell in London at klinsell@bloomberg.net

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


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