Bloomberg News

Banks’ Dollar Funding Costs Rise for Second Week to 1-Month High

May 18, 2012

The cost for European banks to borrow in dollars rose for the second week to the highest in a month, 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 51 basis points below the euro interbank offered rate, or Euribor, at 9 a.m. in London, from minus 49 yesterday, according to data compiled by Bloomberg.

The one-year basis swap was 71 basis points below Euribor from minus 66 yesterday, the highest cost since Jan. 18. A basis point is 0.01 percentage point.

Predictions in the forward market for three-month Euribor relative to overnight indexed swaps, known as the FRA/OIS spread, was little changed at 39 basis points. An increase signals banks are more reluctant to lend.

The Euribor-OIS spread held at 38 basis points, the lowest since Aug. 1, for the 11th day.

Lenders cut overnight deposits at the Frankfurt-based European Central Bank yesterday, placing 762 billion euros ($965 billion) with the bank from 785 billion euros the day before.

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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