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Dollar Funding Costs Head for First Weekly Increase Since July

Sept. 21 (Bloomberg) -- The cost for European banks to borrow in dollars is heading for the first weekly increase since July, 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 21 basis points below the euro interbank offered rate at 10:10 a.m. in London compared with minus 17 on Sept. 14, according to data compiled by Bloomberg. The cost reached a 14-month low of 15 at the end of last week after ten weeks of declines.

The one-year basis swap was 24.5 basis points, or 0.245 percentage point, below Euribor from minus 26.5 yesterday.

Three-month Euribor, the rate banks say they see each other lending in euros, was set at a record-low 0.228 percent, down from 0.233 percent yesterday. The benchmark is derived from a daily survey of banks for the European Banking Federation.

A measure of European banks’ reluctance to make unsecured loans to one another held at the lowest since March 2011. The difference between Euribor and overnight index swaps, the Euribor-OIS spread, was little changed at 15 basis points.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.097 percent yesterday from 0.09 percent the day before. The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 7.6 basis points.

Lenders increased overnight deposits at the European Central Bank yesterday, placing 302 billion euros ($392 billion) with the Frankfurt-based central bank from 299 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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