November 19, 2018 / 2:14 PM / 22 days ago

MONEY MARKETS-Dollar LIBOR rises for fifth straight day

Nov 19 (Reuters) - A key barometer of what banks charge each other to borrow dollars for three months on Monday climbed for a fifth consecutive session as traders expect the U.S. Federal Reserve to raise short-term lending rates next month.

The London interbank offered rate (LIBOR) to borrow three-month dollars edged up 0.13 basis points to 2.64581 percent, the highest level in a decade.

Three-month LIBOR has risen nearly 25 basis points since the end of September. It is about 0.4 percentage point above the average yield on U.S. investment-grade bonds in an index compiled by Bloomberg and Barclays.

In addition to expectations of further Fed rate increases, three-month LIBOR has climbed on rising U.S. government borrowing and a shrinking Federal Reserve balance sheet.

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

Fed policymakers are expected to raise the target range on key lending rates at 2.25-2.50 percent at a two-day meeting on Dec. 18-19, marking their fourth rate increase in 2018.

The “effective” or average rate on federal funds, what banks charge each other to borrow excess reserves overnight, remained at 2.20 percent for a fourth day on Friday, New York Federal Reserve data showed on Monday.

The effective Fed funds rate stayed at parity with what the Fed pays banks on the excess reserves they leave with the central bank (IOER). There have been concerns that the fed funds rate would rise above IOER, which may raise worries about whether Fed policy-makers are losing their grip on monetary policy.

Reporting by Richard Leong Editing by Nick Zieminski

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