Euribor-OIS Spread Holds Near Six-Month Low After Second LTRO

A measure of European banks’ reluctance to lend to one another held near the lowest level in six months as the European Central Bank allotted a second round of three-year crisis loans to financial firms.

The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was 64 basis points at 12:10 p.m. in London, data compiled by Bloomberg show. That’s the lowest since Aug. 31 and down from 97 basis points at the start of the year.

The money-market gauge has fallen for three consecutive months after the ECB’s first so-called longer-term refinancing operation fuelled a credit-market rally and boosted confidence in Europe’s banking sector. The Frankfurt-based bank allotted 529.5 billion euros ($712 billion) in its second LTRO today, more than the 470 billion euros predicted by economists in a Bloomberg News survey.

The rate banks pay to convert euro interest payments into dollars fell to the lowest in seven months. The three-month cross-currency basis swap was 67 basis points below Euribor, the lowest since Aug. 5, from minus 69 yesterday. The measure was 114 below Euribor at the start of the year.

The one-year basis swap was little changed at 57 basis points less than Euribor. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the ECB yesterday, placing 481 billion euros with the central bank, up from 475 billion euros on Feb. 27.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 0.983 percent from 0.991 percent. One-week Euribor fell to 0.357 percent from 0.360 percent.

The London interbank offered rate, or Libor, for three- month dollar loans fell to 0.484 percent from 0.488 percent.

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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