Bank funding spreads reflecting ECB / BoE divergence
Simon Ward
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The three-month euro LIBOR / overnight indexed swap spread fell by a further 5 basis points today, confirming that the ECB’s subsidised term lending has succeeded in easing bank funding pressures. The corresponding sterling spread, by contrast, has remained stable, reflecting the Bank of England’s refusal to offer similar support to UK banks.
The premium of the euro over the sterling spread has narrowed from a peak of 45 basis points to 21 today. UK bank stocks outperformed their Eurozone equivalents as this premium widened in late 2011 – the recent closure could signal a reversal of this relative gain.
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