Bloomberg News

European Banks’ Dollar Funding Costs Fall From One-Month High

May 17, 2012

The cost for European banks to borrow in dollars fell from a one-month high, 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 49 basis points below the euro interbank offered rate, or Euribor, at 1:21 p.m. in London. The measure was minus 51 yesterday, the highest cost since April 17.

The one-year basis swap was 67 basis points below Euribor from minus 68 yesterday. A basis point is 0.01 percentage point.

Three-month Euribor, the rate banks say they pay for loans over that period in euros, rose for the first time since Dec. 19. The measure climbed to 0.686 percent, from 0.685 percent. One-week Euribor fell to 0.317 percent from 0.318 percent.

Predictions in the forward market for three-month Euribor relative to overnight indexed swaps -- known as the FRA/OIS spread -- signalled banks will become more reluctant to lend to one another. The measure rose to 39 basis points from 38 basis points, compared with a three-month high of 43 basis points on May 14.

The Euribor/OIS spread was 38 basis points compared with 38.5 yesterday.

Lenders cut overnight deposits at the Frankfurt-based European Central Bank yesterday, placing 785 billion euros ($999 billion) with the bank from 788 billion euros the day before.

The London interbank offered rate, or Libor, for three- month dollar loans was unchanged at 0.467 percent. The three- month dollar FRA/OIS spread was 48 basis points from 47.5 yesterday.

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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