Bloomberg News

Banks’ Dollar Funding Costs Decline for Fourth Day in Europe

February 20, 2012

Feb. 20 (Bloomberg) -- The cost for European banks to borrow in dollars declined for the fourth day as loans from the region’s policy makers continue to ease borrowing costs, 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 69.6 basis points below the euro interbank offered rate at 10:30 a.m. in London from minus 70.4 on Feb. 17, data compiled by Bloomberg show. The cost has fallen from 114 below Euribor at the start of the year, reaching a six-month low of minus 68 on Feb. 13.

Credit markets have rallied since December when the European Central Bank issued 489 billion euros ($639 billion) of cheap three-year loans to financial firms to stimulate lending. The Frankfurt-based ECB will hold a second so-called longer-term refinancing operation, or LTRO, on Feb. 28.

“The first LTRO has clearly helped general risk sentiment,” said Eric Wand, a fixed-income strategist at Lloyds Bank Corporate Markets in London. “The second LTRO will have similar, albeit less dramatic effects in the near-term.”

The one-year basis swap was 62.5 basis points less than Euribor from minus 62 on Feb. 17. A basis point is 0.01 percentage point.

The Euribor-OIS spread, the difference between Euribor and overnight indexed swaps, was little changed at 68.5 basis points, the lowest level in four months, data compiled by Bloomberg show.

Lenders increased overnight deposits at the ECB for the second day on Friday, placing 454 billion euros with the central bank, up from 417 billion euros on Feb. 16.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell for the 43rd day to 1.031 percent, from 1.036 percent. It’s the longest run of declines in 2 1/2 years. One-week Euribor fell to 0.366 percent from 0.368 percent.

--Editor: Andrew Reierson

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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