Banks’ Dollar Funding Costs Decline to 13-Month Low in Europe

By Katie Linsell - Aug 22, 2012 5:26 PM GMT+0800

The cost for European banks to borrow in dollars fell to the lowest level in 13 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 31.5 basis points below the euro interbank offered rate, or Euribor, at 10:24 a.m. in London, from minus 34 yesterday.

The one-year basis swap was 36 basis points below Euribor from minus 36.5 yesterday, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Three-month Euribor, the rate banks say they see each other lending in euros, was set at a record low 0.310 percent from 0.318 percent yesterday. The benchmark, derived from a daily survey of banks for the European Banking Federation, fell for the thirteenth day.

The Euribor-OIS spread, a measure of banks’ reluctance to lend to each other, held near the lowest since July 7, 2011. The spread was little changed at 24.5 basis points.

The EBF’s euro overnight index average, or Eonia, was set at a record low 0.103 percent yesterday, from 0.109 percent the day before. An estimate of future average overnight borrowing costs in euros, the three-month Eonia swap, was 6.5 basis points, the lowest since Aug. 1, from 6.9 yesterday.

Banks cut overnight deposits at the Frankfurt-based European Central Bank to 327 billion euros ($407 billion) yesterday from 333 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