Bloomberg News

European Banks’ Dollar Funding Costs Drop From Four-Month High

July 06, 2012

The cost for European banks to borrow in dollars declined from the highest in four months, 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 63 basis points below the euro interbank offered rate at 8:20 a.m. in London, according to data compiled by Bloomberg. The measure reached minus 69 basis points yesterday, the most expensive since March 5.

The one-year basis swap was little changed at 55 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 overnight indexed swaps -- known as the FRA/OIS spread -- was 31 basis points from 30 yesterday. An increase signals banks are less willing to lend. The Euribor/OIS spread was 51 basis points from 50.5 yesterday. It’s the highest since March 15.

The Eonia OIS swap, an estimate of average overnight borrowing costs in euros over the next three months, was at 13 basis points from 14 yesterday. The measure dropped to a record low 12.6 after the European Central Bank cut the deposit rate to zero and the benchmark refi rate to 0.75 percent.

Overnight deposits were little changed at the Frankfurt- based ECB yesterday as lenders placed 791 billion euros ($979 billion).

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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