Two near-term events may have the potential to wreak havoc on markets. They could also pass without much notice because they are known events. I am referring to a potential Fed rate hike and the October 14th implementation of Money Market Reform, or MMR. Both will create an uptick in other lending rates. Overall rates remain very low but Libor has already started to adjust to MMR. A Fed rate hike and the implementation of MMR could stress parts of the fixed income market.
Short-term money market paper is likely to see the biggest impact. As prime funds focus on higher quality paper due to the floating NAV (net asset value) requirement, rates are bound to go up for low-credit issuers.
Interestingly, so far high yield (HYG) is not showing any signs of weakness nor is the short-term cousin, (SHYG). As a matter of fact, high yield has experienced a…
