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By Katy Burne 

Rates on overnight loans between banks spiked Friday, a sign lenders were husbanding their cash as the U.K. vote to leave the EU roiled markets.

Banks were paying an average of 0.8% around noon Friday to borrow money from other lenders against high-quality government bonds, according to broker ICAP PLC. That "repo" rate was up from 0.75% at the open of Friday's session and from 0.69% Thursday, as votes on the U.K.'s continued membership in the EU trickled in. On Wednesday, the rate was 0.57%, before the referendum began.

"The volatility and flight to quality in the overall U.S. Treasury market caused a panic this morning in the repo market," said Scott Skyrm, a repo and securities financing expert at Wedbush Securities, who said he saw one borrower pay 1.15% for overnight money. He predicted the distortions in the market would likely "correct themselves over the next week."

Yields on benchmark 10-year Treasurys fell as low as 1.419% early Friday amid heavy demand for the safe securities before rebounding to 1.57%. Yields fall when prices rise.

The $3 trillion repo market is an obscure but crucial way financial firms fund themselves and their portfolios of securities across Wall Street.

The moves Friday were unusually large for a market where rates typically change by only one or two hundredths of a percentage point a day, some traders said, showing the impact of the U.K. vote to leave the EU

"It's been all over the place," Boris Rjavinski, director in interest-rate strategy at Wells Fargo Securities, said of the repo rate Friday. "Balance sheet is very tight into quarter-end, and uncertainty only makes it worse, so that's why you see repo rates rising."

The increasing cost of overnight loans spilled over into the federal funds market, which sets the cost of related overnight loans between banks and is used by the Federal Reserve to set its benchmark interest rate. The daily effective fed-funds rate has been rising in recent days. ICAP quoted the intraday fed-funds rate at 0.40% early Friday, up from 0.39% on Thursday and 0.37% last week.

"The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks," the Fed Board of Governors said in a statement. It said it "is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressure in global funding markets, which could have adverse implications for the U.S. economy."

Use of the Fed's dollar liquidity and foreign-currency swap lines stood at zero in the week ended June 22, down from $6 million as of the week ended June 15 and down from hundreds of billions of dollars in the financial crisis.

New data for the week including June 23 won't be available until Thursday.

A spokeswoman for the New York Fed, which oversees the swap lines and whose trading desk uses the repo markets to help implement the central bank's monetary policy moves, declined to comment.

Write to Katy Burne at katy.burne@wsj.com

(END) Dow Jones Newswires

June 24, 2016 12:58 ET (16:58 GMT)

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