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.