Money market stress eased slightly on Wednesday after Greek lawmakers endorsed unpopular austerity plans but analysts still expect European banks to struggle to secure funding in US markets with the region's debt crisis far from resolved.
The Greek parliament approved the austerity package by 155 votes to 138, but a second vote due on Thursday on specific budget and private budget plans, and failure to pass that bill would hamper the release of international aid, which is crucial for the country to avert an imminent default.
Credit markets showed a bit of relief after Wednesday's vote, with the cost of insuring against a default of the top French banks - which are more exposed to the Greek debt crisis than eurozone rivals - falling, according to credit default swaps prices from Markit.
The cost of raising funds in dollars as shown by euro-dollar cross-currency basis swaps showed signs of cooling further after a flare-up earlier this month caused by investors shielding their portfolios from any fallout due to the eurozone debt crisis. The one-year cross-currency basis swap, which expands when banks grow reluctant to lend dollars to each other, narrowed to 28.5 basis points from 31 basis points contracts, but was still far from the 24 bps reached earlier this year.
US money market funds withheld funding to European banks after Moody's threat earlier this month to cut the credit rating of France's three top banks, citing their exposure to Greece. The iTraxx index senior European financials CDS index was only three basis points tighter on the day at 167 bps, having widened to 176 bps this month.
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