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Banks’ Dollar Funding Costs Hold Near Three-Week High in Europe

Oct. 3 (Bloomberg) -- The cost for European banks to borrow in dollars held near the highest level 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 little changed at 26 basis points below the euro interbank offered rate at 10:45 a.m. in London, the most expensive since Sept. 5, according to data compiled by Bloomberg. The cost has increased from minus 17 on Sept. 14, the cheapest since June 2011.

The one-year basis swap was little changed at 27 basis points, or 0.27 percentage point, below Euribor.

A measure of European banks’ reluctance to make unsecured loans to one another held near the lowest since August 2007. The difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, was little changed at 13.5 basis points.

Three-month Euribor, the rate banks say they see each other lending at in euros, was set at a record low 0.218 percent from 0.22 percent yesterday. The benchmark is derived from a daily survey of banks for the European Banking Federation.

The EBF’s euro overnight index average, or Eonia, of unsecured lending deals was set at a record low 0.087 percent yesterday from 0.095 the day before. The volume of overnight lending as measured by the EBF in Brussels dropped to 12.7 billion euros ($16.4 billion) of transactions yesterday, the lowest since May 17, from 25.6 billion euros the day before.

The Eonia swap, an estimate of average overnight borrowing costs over the next three months, was little changed at 8.3 basis points. Lenders increased overnight deposits at the European Central Bank yesterday, placing 297 billion euros with the Frankfurt-based central bank from 295 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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