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Euribor-OIS Spread Increases to 2 1/2-Year High After Rate Cut

Nov. 3 (Bloomberg) -- A measure of banks’ reluctance to lend to one another in Europe rose to the highest in more than 2 1/2 years after the European Central Bank unexpectedly cut its benchmark interest rate.

The Euribor-OIS spread, the difference between the euro interbank offered rate and overnight index swaps, was at 95 basis points as of 1 p.m. in London, from 87 yesterday. That’s the highest since March 2009. The ECB lowered its rate 25 basis points to 1.25 percent.

The cost for European banks to fund in dollars rose. The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 118 basis points below the euro interbank offered rate, from minus 105 yesterday, according to data compiled by Bloomberg. That’s the widest since December 2008, when the difference was minus 145.

The one-year basis swap was 71 basis points under Euribor, from minus 65 yesterday. A basis point is 0.01 percentage point.

Lenders increased overnight deposits at the European Central Bank. Banks parked 253 billion euros ($349 billion) at the Frankfurt-based ECB yesterday, from 229 billion euros on Nov. 1. That compares with a year-to-date average of 68 billion euros.

Three-month Euribor -- the rate banks say they pay for three-month loans in euros -- fell to 1.58 percent from 1.584 percent yesterday. One-week Euribor rose to 1.136 percent from 1.134 percent.

The three-month dollar London interbank offered rate, or Libor, for three-month dollar loans climbed to 0.435 percent from 0.433 percent yesterday, data from the British Bankers’ Association showed. That’s the highest level since Aug. 2, 2010.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editors responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net

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