Dollar Funding Costs Rise to One-Week High in Euro Money Markets

The cost for European banks to borrow in dollars rose for the fourth day to the highest in more than a week, 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 8:13 a.m. in London, from minus 25 yesterday according to data compiled by Bloomberg. The cost is the highest since Oct. 1.

The one-year basis swap was 26.5 basis points, or 0.265 percentage point, below Euribor from minus 25.5 yesterday.

A measure of European banks’ reluctance to make unsecured loans to one another held near the lowest since August 2007. The difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, was 12.7 basis points from 12.6 yesterday.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.092 percent yesterday from 0.091 the day before. The volume of overnight lending as measured by the EBF in Brussels fell to 22.6 billion euros ($29 billion) of transactions yesterday, the lowest since Oct. 3, from 23.7 billion euros the day before.

The Eonia swap, an estimate of average overnight borrowing costs over the next three months, rose to 9.5 basis points from 8.6 yesterday.

Lenders cut overnight deposits at the European Central Bank yesterday, placing 243 billion euros with the Frankfurt-based central bank from 284 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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