Euro Money-Market Indicator Shows Increased Bank Lending Stress

A money-markets indicator is signalling that banks will become increasingly reluctant to lend to one another amid the deepening euro debt crisis.

Predictions in the forward market for the three-month euro interbank offered rate relative to overnight indexed swaps, known as the FRA/OIS spread, widened six basis points to a three-month high of 42.5 basis points at 1:45 p.m. in London data compiled by Bloomberg show. The measure was 37 on May 11.

Three-month Euribor, the rate banks say they pay for three- month loans in euros, fell to 0.689 percent from 0.690 percent. The measure hasn’t increased for 100 consecutive days. One-week Euribor rose to 0.318 percent from 0.317 percent.

The Euribor-OIS spread was 37 basis points from 38 on May 11. The measure fell to the lowest level since Aug. 1.

The cost for banks to convert euro interest payments into dollars rose for the second day. The three-month cross-currency basis swap was 47 basis points below Euribor from minus 45 on May 11. The one-year basis swap was 60 basis points less than Euribor from minus 55. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the Frankfurt-based European Central Bank on May 11, placing 763 billion euros ($983 billion) with the bank from 703 billion euros the day before.

The London interbank offered rate, or Libor, for three- month dollar loans fell to 0.466 percent from 0.467 percent. The three-month dollar FRA/OIS spread was 47 basis points from 43 on May 11.

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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