Bloomberg News

Banks’ Dollar Funding Costs Fall From Three-Week High in Europe

June 26, 2012

The cost for European banks to borrow in dollars fell from the most expensive in three weeks, according to a money-markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 56.5 basis points below the euro interbank offered rate at 8:50 a.m. in London, from minus 58 yesterday, according to data compiled by Bloomberg. The measure reached 59 basis points on June 4, the highest cost in 2 1/2 months.

The one-year basis swap was little changed at 54 basis points below Euribor. A basis point is 0.01 percentage point. Euribor is the rate banks say they see each other lending in euros and is derived from a survey by the European Banking Federation.

Prices in the forward market for three-month Euribor relative to a gauge of overnight borrowing costs or overnight indexed swaps -- known as the FRA/OIS spread -- were unchanged at 27 basis points. The Euribor/Eonia OIS spread held at 43 basis points.

The Eonia OIS swap, an estimate of average overnight borrowing costs over the next three months, was unchanged at 22 basis points. The measure has held below the European Central Bank’s deposit rate of 25 basis points for the seventh day.

Lenders cut overnight deposits at the Frankfurt-based ECB yesterday, placing 750 billion euros ($938 billion) from 775 billion euros on June 22.

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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