The rate London-based banks say they pay for three month dollar loans held steady for the sixth consecutive day as stresses in the money markets ease.
Three-month London interbank offered rate, or Libor, which represents the rate at which banks say it would cost to borrow from another, was 0.46585 percent, unchanged from yesterday and at the same rate for every trading day since April 24, according to the British Bankers’ Association. The rate is down from as high this year as 0.5825 percent on Jan. 3.
The Libor-OIS spread, a gauge of banks reluctance to lend, was 32.1 basis points, compared with 32.2 basis points yesterday. The gap was as high as 51 basis points this year on Jan. 6. Overnight index swaps, or OIS, give traders predictions on where the Fed’s effective funds rate will average for the term of the swap. The central bank’s target rate is set in a range of zero to 0.25 percent.
Predictions in the forward market for Libor-OIS, known as the FRA/OIS spread, were little changed at 32.75 basis points for June, compared with 32.4 basis points yesterday, according to UBS AG data.
The difference between the two-year swap rate and the comparable-maturity Treasury note yield, known as the swap spread, was 28.3 basis points, up from 27.98 basis points yesterday. The gap is a gauge of investors’ perceptions of U.S. banking sector credit risk as swap rates are derived from expectations for dollar Libor. Swap rates serve as benchmarks for investors in many types of debt, including mortgage-backed and auto-loan securities.
The cost for European banks to convert euro-denominated payment streams into dollars-based funding via the cross currency swaps market fell. The three-month cross-currency basis swap was 43.5 basis points below Euribor, compared to 45 basis points below yesterday. The basis swap rate was minus 162.5 basis points on Nov. 30.
The market for corporate borrowing through U.S. commercial paper contracted. The seasonally adjusted amount of U.S. commercial paper declined $6.7 billion to $925.9 billion outstanding in the week ended April 25, the third fall in four weeks, according to Federal Reserve data compiled by Bloomberg. Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as paying rent and salaries.
The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, rose. The measure of banks’ reluctance to lend to one another rose to 40 basis points from 39 basis points yesterday. The measure has fallen from 95 basis points at the start of the year.
The price on one-year cross-currency basis swaps between yen and U.S. dollars was minus 29.1 basis points, compared to minus 28.7 yesterday. A negative swap price indicates investors are willing to receive reduced interest payments on the yen they lend in order to obtain the needed financing in dollars.
Foreign-exchange swaps are typically for periods of less than a year, while cross-currency basis swaps usually range from one to 30 years. The latter are agreements in which a person borrows in one currency and simultaneously lends in a different currency. The trade involves the exchange of two different floating-rate payments, each denominated in a different currency and based on a different index.
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net
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