Euro Swap Spreads Narrow on Signs Bank Funding Stress Eases

Two-year euro swap spreads narrowed for a fourth day as signs funding pressures are easing at Europe’s financial institutions diminished the need for hedges against a deterioration in credit quality.

The spread, which indicates the extra risk of trading with banks for two years instead of buying government securities, touched the lowest level in more than five weeks as the European Central Bank awarded temporary loans to ease the expiration of 12-month emergency funds. European banks yesterday asked for 131.9 billion ($164.7 billion) in three-month loans, less than economists expected. The euro rallied to the highest in a month against the dollar.