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MONEY MARKETS-Dollar Libor resumes rise, hits 7-year high
August 22, 2016 / 1:46 PM / in a year

MONEY MARKETS-Dollar Libor resumes rise, hits 7-year high

NEW YORK, Aug 22 (Reuters) - A closely watched measure of the cost for banks to borrow dollars rose on Monday to a more than seven-year high on U.S. money market funds’ reduced demand for bank debt.

The London interbank offered rate on three-month dollars , or Libor, was fixed at 0.82544 percent, up from 0.81711 percent on Friday.

Three-month Libor, a benchmark for more than $300 trillion worth of financial products worldwide, posted its first weekly drop last week since June.

Libor for other maturities kept rising, however.

One-month Libor rose on Monday to 0.52217 percent, its highest since March 2009, while six-month Libor climbed to 1.22900 percent, its highest since June 2009.

Since July, some U.S. prime money market funds, which had been major holders of commercial paper and other bank debt, have changed over to funds that hold only government securities.

Government-only money funds are exempt from rules on share value and fees from the U.S. Securities and Exchange Commission that will take effect on Oct. 14.

Prime funds overall are holding more short-term maturity debt in anticipation of heavy redemption from investors before Oct. 14.

“Prime funds remain extremely cautious, and have continued to pull in maturities,” J.P. Morgan Securities analysts wrote in a research note on Monday.

U.S. commercial paper outstanding shrank in recent weeks in the wake of this conversion among prime money funds. Last week, the commercial paper supply fell to $1.012 trillion on a seasonally adjusted basis, its lowest level in 10 months, according to Federal Reserve data released on Thursday.

Reporting by Richard Leong; Editing by Lisa Von Ahn

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