Banks’ Dollar Funding Costs Rise to Three-Week High in Europe

The cost for European banks to borrow in dollars rose to the highest level in more than three weeks, 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 27 basis points below the euro interbank offered rate at 11 a.m. in London, the most expensive since Sept. 5, according to data compiled by Bloomberg. The cost has increased from minus 17 on Sept. 14, the cheapest since June 2011.

The one-year basis swap was 27 basis points, or 0.27 percentage point, below Euribor from minus 26 on Sept. 28.

Three-month Euribor, the rate banks say they see each other lending in euros, rose to 0.223 percent from a record low 0.220 percent on Sept. 28. The benchmark, derived from a daily survey of banks for the European Banking Federation, rose for the first time since June 28.

A measure of European banks’ reluctance to make unsecured loans to one another held near the lowest since March 2011. The difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, was little changed at 13.3 basis points.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.107 percent on Sept. 28, the highest since Sept. 6, from 0.095 the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 8.5 basis points.

Lenders increased overnight deposits at the European Central Bank on Sept. 28, placing 316 billion euros ($406 billion) with the Frankfurt-based central bank from 289 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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