A measure of European banks’ reluctance to lend to one another dropped for the 10th week to the lowest level in seven months as bond investors agreed to Greece’s debt swap and central-bank funds buoyed credit markets.
The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was 55 basis points at 12 p.m. in London from 56 yesterday, data compiled by Bloomberg show. The measure has fallen every week this year to the lowest level since Aug. 5.
Private investors forgave more than 100 billion euros ($132 billion) of Greek debt in a bond exchange that’s the key element in European leaders’ efforts to ease the region’s two-year-old sovereign crisis. Credit markets have already rallied since December when the European Central Bank started offering banks cheap loans through longer-term refinancing operations.
“The news that the Greek bond swap looks to be going ahead with high participation is a positive development and contributes to this morning’s tightening,” said Brian Barry, a strategist at Investec Bank Plc in London. “The fact that banks have secured LTRO funding for the near term is obviously the catalyst for a large part of the spread contraction.”
The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 62.5 basis points below Euribor from minus 64 yesterday. The measure was minus 114 at the start of the year.
The one-year basis swap was little changed at 53 basis points less than Euribor. A basis point is 0.01 percentage point.
Lenders cut overnight deposits at the ECB for the third day yesterday, placing 801 billion euros with the Frankfurt-based central bank from 807 billion euros on March 7.
Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 0.894 percent from 0.902 percent. One-week Euribor fell to 0.318 percent from 0.319 percent.
The London interbank offered rate, or Libor, for three- month dollar loans was unchanged at 0.474 percent.
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