Banks’ Dollar Funding Costs Fall From Three-Week High in Europe

The cost for European banks to borrow in dollars declined from the highest 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 54 basis points below the euro interbank offered rate at 9 a.m. in London from minus 59 basis points yesterday, the highest since June 4. The cost has increased for the past two months.

The one-year basis swap was at 50 basis points below Euribor from minus 53 yesterday. A basis point is 0.01 percentage point. Euribor is the rate banks say they see each other lending in euros and is derived from a survey by the European Banking Federation.

Prices in the forward market for three-month Euribor relative to a gauge of overnight borrowing costs or overnight indexed swaps -- known as the FRA/OIS spread -- were at 27.5 basis points from 28. A decrease signals banks are more willing to lend. The Euribor/Eonia OIS spread was 41 basis points from 42.

The Eonia OIS swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 24 basis points. The measure held below the European Central Bank’s deposit rate of 25 basis points for the 10th day.

Lenders increased overnight deposits at the Frankfurt-based ECB yesterday, placing 782 billion euros ($984 billion) from 773 billion euros the day before.

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