Euribor-OIS Spread Widens as Renewed Greece Concerns Boost Lending Costs
Banks Reluctant Amid Bets Greece Close to Default
Angelos Tzortzinis/Bloomberg
The IMF and European Union are reviewing whether Greece can meet the conditions of its international bailout.
The IMF and European Union are reviewing whether Greece can meet the conditions of its international bailout. Photographer: Angelos Tzortzinis/Bloomberg
A gauge of banks’ reluctance to lend to each other in Europe rose for the first time in a week amid renewed concern Greece is headed for a default.
The Euribor-OIS spread, the difference between the three- month euro interbank offered rate and overnight index swaps, was at 79.1 basis points as of 4:18 p.m. in London, from 75.3 at the end of last week, according to data compiled by Bloomberg. That’s within six basis points of the highest level since March 2009, reached Sept. 12.
The International Monetary Fund and European Union are reviewing whether Greece can meet the conditions of its international bailout after a two-day meeting of finance ministers failed to result in new measures to support the region. Greece’s economy will shrink 5.5 percent this year and then “notably” in 2012, Finance Minister Evangelos Venizelos said in Athens today.
The cost for European lenders to fund in dollars was little changed, after the European Central Bank coordinated with its counterparts around the world last week to provide unlimited dollar loans until year-end.
The cost of converting euro payments into dollars, measured by the three-month cross-currency basis swap, was 92.9 basis points below the euro interbank offered rate, from 87.1 basis points on Sept. 16. The cost was 112.5 basis points under Euribor a week ago, when the swap was the most expensive since December 2008.
One-Year Swap
The cost of one-year dollar funding climbed, with the cross-currency basis swap for that period at 66.7 basis points less than Euribor, compared with 64.7 at the end of last week, Bloomberg data show. The difference widened to as much as 78.8 basis points Sept. 12.
“The basis swap spread is important as it adds to already substantial bank funding costs,” Philip Gisdakis, a strategist at UniCredit SpA in Munich, wrote in a note. “Although the spread has declined on the back of the ECB intervention, it is still very high.”
Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- was little changed at 1.536 percent from 1.535 percent. One-week Euribor climbed to 1.125 percent, from 1.111 percent.
The three-month London interbank offered rate, or Libor, in dollars rose to 0.3525 percent from 0.35133 percent at the end of last week, according to the British Bankers’ Association. That’s the highest rate since Aug. 16, 2010. The dollar Libor- OIS spread rose one basis point to 29.1 basis points in London, according to data compiled by Bloomberg.
The ECB said financial institutions increased overnight deposits. Banks parked 111.5 billion euros ($152 billion) with the ECB on Sept. 16, compared with 98 billion euros the day before and 197.8 billion euros on Sept. 12, the Frankfurt-based lender said in data released overnight.
Credit-Default Swaps
The cost of insuring European bank bonds rose, ending last week’s declines.
Credit-default swaps insuring the subordinated debt of 25 European banks and insurers climbed 33 basis points to 498, after dropping a record 70 basis points last week, according to JPMorgan Chase & Co. The senior note index rose 28 basis points to 293, after the biggest weekly drop since March 2008.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. An increase signals deterioration in investor perceptions of credit quality.
To contact the reporters on this story: John Glover in London at johnglover@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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