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Dollar Funding Costs Rise to 3-Year High in Euro Money Markets

The cost for European banks to fund in dollars rose to the highest levels in three years, according to money-market indicators.

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 148 basis points below the euro interbank offered rate at 11:53 a.m. in London, from minus 146 Nov. 25. The measure is the most expensive on a closing basis since October 2008.

The one-year basis swap was little changed at 100 basis points under Euribor, data compiled by Bloomberg show. A basis point is 0.01 percentage point.

A measure of banks’ reluctance to lend to one another in Europe was little changed. The Euribor-OIS spread, the difference between the borrowing benchmark and overnight index swaps, held at 93 basis points. The difference was 98 basis points on Nov. 3, the widest since March 2009.

Lenders increased overnight deposits at the European Central Bank, placing 256 billion euros ($342 billion) with the Frankfurt-based ECB on Nov. 25, up from 237 billion euros the previous day. That compares with a year-to-date average of 78 billion euros.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, rose to 1.477 percent from 1.475 percent on Nov. 25. One-week Euribor fell to 0.909 percent from 0.911 percent on Nov. 25.

The dollar London interbank offered rate, or Libor, for three-month dollar loans rose to 0.523 percent from 0.518 on Nov. 25, data from the British Bankers’ Association showed. That’s the highest level since July 15, 2010.

To contact the reporter on this story: Namitha Jagadeesh in London at njagadeesh@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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