Banks’ Dollar Funding Costs Rise for First Month Since November

The cost for European banks to borrow in dollars is heading for its first monthly increase since November, according to a money-market indicator.

The three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, was 52 basis points below the euro interbank offered rate at 12 p.m. in London from minus 51 yesterday and minus 45 on April 30, according to data compiled by Bloomberg.

The three-month basis swap widened to as much as minus 162.5 on Nov. 30 before the European Central Bank bolstered banks with more than one trillion euros ($1.2 trillion) of cheap loans through its longer-term refinancing operations.

The one-year basis swap widened for the second month, reaching 65 basis points below Euribor from minus 52 on April 30. A basis point is 0.01 percentage point.

Short-term bank funding rates exceeded longer-term costs in the market for borrowing and lending European government bonds, the so-called repo market. The difference between the one-day euro repurchase agreement and three-month repo rates was little changed at 3.7 basis points, near the widest in three months, European Banking Federation data show.

Prices in the forward market for three-month Euribor relative to overnight indexed swaps -- known as the FRA/OIS spread -- was 32 basis points from 31 yesterday. An increase signals banks are more reluctant to lend.

The Euribor/OIS spread was 39.5 basis points from 39 yesterday.

ECB Deposits

Lenders increased overnight deposits at the Frankfurt-based ECB yesterday, placing 770 billion euros from 760 billion euros the day before.

Three-month Euribor, the rate banks say they pay for loans over that period in euros, fell to 0.668 percent from 0.671 percent the day before, while one-week Euribor was unchanged at 0.317 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 44.5 basis points from 44 yesterday.

Three-month Euribor USD, a gauge of dollar funding costs from the Brussels-based EBF, rose to 0.930 percent from 0.922 percent.

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