European Banks’ Dollar Funding Costs Decline to Lowest in a Year

The cost for European banks to borrow in dollars dropped to the lowest in a year, according to a money market indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 40 basis points below the euro interbank offered rate at 8:38 a.m. in London from 41.5 yesterday, data compiled by Bloomberg show. The cost is the cheapest since July 26, 2011.

The one-year basis swap was 48.5 basis points, or 0.485 percentage point, below Euribor from minus 50 yesterday. Three- month Euribor, the rate banks say they see each other lending in euros, was set at a record low 0.422 percent yesterday.

The European Banking Federation’s euro overnight indexed average, or Eonia, was set at a record low 11.2 basis points yesterday from 11.4 the day before. An estimate of overnight borrowing costs over the next three months, the Eonia OIS swap, fell to as low as 8.4 basis points from 9.3 at the close yesterday.

Banks cut overnight deposits at the European Central Bank to the lowest since Dec. 21 yesterday, placing 321 billion euros ($394 billion) with the Frankfurt-based ECB from 337 billion euros on July 25.

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