October 30, 2018 / 12:39 PM / 10 months ago

MONEY MARKETS-LIBOR/OIS spread hits widest level since August

NEW YORK, Oct 30 (Reuters) - A measure of strain in U.S. money markets grew to its widest level in 2-1/2 months on Tuesday as a gauge of interbank borrowing costs increased for a 10th straight session to a fresh decade high.

The London interbank offered rate for banks to borrow three-month dollars from each other climbed 1.4 basis points to 2.54100 percent, the highest since October 2008.

LIBOR is the rate benchmark for $200 trillion of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

Meanwhile, the three-month overnight indexed swap (OIS) rate , which reflects traders’ expectations on the federal funds rate, held steady at 2.2750 percent.

The gap between three-month LIBOR and OIS expanded to 26.6 basis points from 25.2 basis points on Monday, marking its widest level since Aug. 16.

This spread grows as it becomes more costly for banks to borrow from one another.

Money market rates have increased due to a combination of factors including more borrowing by the U.S. government, the Federal Reserve reducing its bond holdings and its campaign to raise short-term interest rates.

Reporting by Richard Leong; Editing by Andrea Ricci

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