May 28 (Bloomberg) -- A money-market measure of European banks’ reluctance to lend to each other fell to a three-week low as Greek opinion polls showed increased support for parties backing a bailout plan.
Prices in the forward market for the three-month euro interbank offered rate relative to overnight indexed swaps, known as the FRA/OIS spread, narrowed to 31 basis points at 12:52 p.m. in London from 32 on May 25, according to data compiled by Bloomberg. The measure is the lowest since May 7.
Greece’s New Democracy party, which backs the rescue package negotiated with international lenders, placed first in all six opinion polls published two days ago as campaigning continued for elections on June 17. Concern has been building that Greece’s exit from the euro will pressure the solidity of the currency union.
“The euro FRA/OIS spread has come down over the past few sessions,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank WBM in London. “There is an understandable focus on the Greek opinion polls while we all remain in a highly uncertain environment until June 17.”
The cost for European banks to borrow in dollars fell to the lowest levels in more than two weeks. The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 44 basis points below Euribor, the lowest since May 10. The measure was minus 48 on May 25.
The one-year basis swap was 62 basis points below Euribor from minus 63 on May 25. A basis point is 0.01 percentage point.
The Euribor/OIS spread was at 39 basis points from 40 on May 25.
Lenders cut overnight deposits at the Frankfurt-based European Central Bank on May 25, placing 760 billion euros ($958 billion) from 761 billion euros the day before.
Three-month Euribor, the rate banks say they pay for loans over that period in euros, fell for the seventh day to 0.673 percent from 0.675 percent. One-week Euribor was unchanged at 0.318 percent.
The London interbank offered rate, or Libor, for three-month dollar loans was unchanged at 0.467 percent. The three-month dollar FRA/OIS spread was 44 basis points from 45 on May 25.
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