CONCLUSION
There are several potential drivers of the recent rise in Libor, though banking fears are not one of them. It remains to be seen if the increase will stick, but if Libor starts to drop following the implementation of money market reform in mid-October 2016, it may be a sign that the increase was a transient event. However, if rates don’t fall, or at least reconnect with Fed rate hike expectations, it may be an indication that benchmark regulations are a more important driver. Such a structural change would be more likely to persist and may have a greater impact on financial markets, especially for those who hold adjustable rate products such as floating rate bonds or for those who carry adjustable rate mortgages.
Anthony Valeri is fixed-income and investment strategist for LPL Financial.