Bank Lending Stress Holds at 16-Month Low in Euro Money Markets

European banks’ reluctance to lend to one another held at the lowest in more than 16 months, according to a money-market indicator.

The difference between the euro interbank offered rate and overnight indexed swaps, known as the Euribor-OIS spread, was 15.9 basis points, or 0.159 percentage point, at 8:45 a.m. in London, from 16.2 basis points yesterday, data compiled by Bloomberg show. The gap is the smallest since April 28, 2011.

The cost for European banks to borrow in dollars held at the highest in a week. The three-month cross-currency basis swap was little changed at 22 basis points below Euribor, the most expensive since Sept. 12. The one-year basis swap was 27.5 basis points below Euribor from minus 28 yesterday.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.1 percent yesterday from 0.089 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was 8.3 basis points from 8 yesterday.

Lenders increased overnight deposits at the European Central Bank yesterday, placing 318 billion euros ($416 billion) with the Frankfurt-based central bank from 306 billion euros the day before.

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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