* Futures imply traders nearly priced in U.S. rate hike next
* Libor/OIS spread narrows to tightest level since June
(Adds details on money market rate movements, analyst comment)
By Richard Leong
NEW YORK, March 8 Interest rates on U.S.
Treasury bills on Wednesday rose to their highest levels since
late 2008 as stronger-than-forecast data on private-sector jobs
growth in February stoked expectations the Federal Reserve will
raise rates at its policy meeting next week.
Payroll processor ADP said on Wednesday U.S. companies added
298,000 jobs, the biggest monthly rise since December 2015 and
beating a median forecast of a 190,000 increase among analysts
polled by Reuters.
The futures market implied traders saw the chances of a rate
hike next week as high as 91 percent in the aftermath of
the stunningly strong ADP data, CME Group's FedWatch program
Interest rates futures suggested traders have priced in a 57
percent probability the Fed would raise rates at least
three times in 2017, according to CME's FedWatch.
In the T-bill market, the three-month rate
reached 0.782 percent, the highest since October 2008, while the
six-month rate touched 0.871 percent, its highest
level since November 2008, EBS Brokertec data showed.
The rise in T-bill interest rates was offset by concerns
about whether the federal government's statutory borrowing limit
will be reinstated on March 16.
The debt ceiling when in effect will mean the U.S. Treasury
Department will have to take extraordinary measures to continue
issuing T-bills and bonds to pay its obligations.
If the federal debt limit is not increased, the
Congressional Budget Office said on Tuesday the government will
run out of cash "sometime in the fall of 2017."
LIBOR/OIS SPREAD COLLAPSES
While T-bill rates have risen sharply on bets on a pending
Fed rate hike, a global measure on bank borrowing costs for
dollars has edged up at a far slower pace.
The London interbank offered rate for three-month dollars
was fixed earlier Wednesday at 1.1090 percent, the
highest since April 2009.
Libor is a global benchmark for $350 trillion of financial
Meanwhile the difference between three-month Libor and the
three-month overnight indexed swap (OIS) rate, which
measures traders' view on the Fed's policy rate, has collapsed
since early February.
The spread between the two rates contracted to less than 25
basis point, the tightest level since June 2016.
This move suggested optimism that higher U.S. rates would
"Tightening of very-front-end financial credit spreads like
this makes sense, as rate hikes are especially helpful for bank
fundamentals," Bank of America Merrill Lynch's head of U.S high
grade credit strategy Hans Mikkelsen wrote in a research note on
(Reporting by Richard Leong; Editing by Chizu Nomiyama)