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November 25, 2011

Europe dollar funding costs near 2008 crisis levels

The euro/dollar one-year cross currency basis swap , which widens when lenders charge more for swapping euro interest payments on an underlying asset into dollars, was at -104 bps -- close to expensive levels of -115 bps in late 2008.

The deterioration in cross currency swaps has to do with the deepening of the sovereign crisis. Now we are entering into a new phase, where it is really moving to the core, so I think European banks ... will struggle more to get money," Alessandro Giansanti, strategist at ING.

Contagion has recently spread to triple-A rated debt such as that of Austria and the Netherlands. This week market pressure turned on Germany after one of its worst bond sales since the launch of the euro.





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