A key measure on what banks charge each other to borrow three-month dollars registered its largest one-day gain since mid-March, as the US government's growing debt load and the Federal Reserve's shrinking balance sheet have ratcheted up private borrowing costs.
The London inter-bank offered rate to borrow three-month dollars rose 2.3 basis points to 2.5815 percent, the highest since October 2008. This was the biggest daily increase since a near 2.6 basis points rise on March 20. LIBOR is the rate benchmark for $200 trillion of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.
In October, LIBOR surged 16.0 basis points, which was the biggest increase since a 29.5 basis-point jump seven months ago. Other US money market rates also climbed last month on expectations the Fed would hike short-term rates further as labour conditions remain tight and inflation is approaching its 2-percent goal. The federal funds rate averaged 2.20 percent on Wednesday for a seventh straight session, according to New York Federal Reserve data released on Thursday.