Dollar Funding Costs Rise for Second Week in Euro Money Markets

The cost for European banks to borrow in dollars is heading for the second weekly increase since July, according to a money-markets indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 25 basis points below the euro interbank offered rate at 8:20 a.m. in London compared with minus 21 on Sept. 21, according to data compiled by Bloomberg. The cost reached a 15-month low of minus 17 on Sept. 13 after 10 weeks of declines.

The one-year basis swap was 25 basis points, or 0.25 percentage point, below Euribor from minus 27 yesterday.

A measure of European banks’ reluctance to make unsecured loans to one another held at the lowest since March 2011. The difference between Euribor and overnight index swaps, the Euribor-OIS spread, was little changed at 13.9 basis points.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.095 percent yesterday from 0.096 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was 8.5 basis points from 8.7 yesterday.

Lenders cut overnight deposits at the European Central Bank yesterday to the lowest since Aug. 8. Banks placed 289 billion euros ($374 billion) with the Frankfurt-based central bank from 308 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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