Are money market rate spikes warning signs?
With largely positive factors in markets, there's no cause for panic at this juncture.
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ONE question we often hear today is whether the recent surges in money market rates in the US and Hong Kong - that is, the US repo rate (repurchase agreement rate) and the HIBOR (Hong Kong Interbank Overnight Offered Rate) - serve as warning signs of a major market dislocation ahead.
We agree that these events need to be assessed carefully, as the end of bull markets is often accompanied by discordant warning signs.
For instance, one would recall that months before the failure of Lehman Brothers in September 2008, the Federal Reserve had to set up a term auction facility in August 2007 to supply short-term credit to banks holding sub-prime mortgages.
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