Euribor-OIS Spread Declines for 13th Week as EU Boosts Firewall

European banks’ reluctance to lend to one another fell for the thirteenth week to the lowest in eight months as the region’s governments moved to bolster rescue funds.

The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight indexed swaps, was 41 basis points at 11:50 a.m. in London, from 42 yesterday, data compiled by Bloomberg show. The measure has fallen every week this year to the lowest level since Aug. 3.

Finance ministers neared an agreement to run the temporary European Financial Stability Facility in parallel with the permanent European Stability Mechanism until mid-2013, lifting the maximum aid sum from 500 billion euros ($667 billion). The European Central Bank’s so-called longer-term refinancing operations, or LTROs, have also cut bank borrowing costs.

“We’ve seen the slow and steady decline of the Euribor-OIS spread since the first LTRO,” said Brian Barry, a strategist at Investec Bank Plc in London. “Recent progress in talks to increase the size of the euro zone firewalls has also contributed to the decline in the spread.”

The cost for banks to convert euro interest payments into dollars fell for the fourth week with the three-month cross- currency basis swap at 50.5 basis points below Euribor. The cost reached an eight-month low of minus 49.5 on March 26.

The one-year basis swap was 45 basis points less than Euribor, from minus 44 yesterday. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the ECB yesterday to 786 billion euros, up from 777 billion euros on March 28.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 0.777 percent from 0.783 percent. One-week Euribor fell to 0.316 percent from 0.317 percent.

The London interbank offered rate, or Libor, for three- month dollar loans was unchanged at 0.468 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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