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European Banks’ Dollar Funding Costs Drop for First Time in Week

Oct. 12 (Bloomberg) -- The cost for European banks to borrow in dollars fell for the first time this week, 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 25 basis points below the euro interbank offered rate at 8:13 a.m. in London, from minus 26 yesterday according to data compiled by Bloomberg. The one-year basis swap was little changed at 26 basis points, or 0.26 percentage point, below Euribor.

A measure of European banks’ reluctance to make unsecured loans to one another rose from a five-year low. The difference between Euribor and overnight index swaps, known as the Euribor-OIS spread, was 12.4 basis points after reaching 11.75 yesterday, the lowest since August 2007.

The European Banking Federation’s euro overnight index average, or Eonia, of unsecured lending deals was set at 0.095 percent yesterday from 0.092 the day before.

The Eonia swap, an estimate of average overnight borrowing costs over the next three months, fell to 8.7 basis points from 9.3 yesterday.

Lenders left overnight deposits at the European Central Bank little changed at 243 billion euros ($315 billion) yesterday.

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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