Financial markets showing new strain of coping with rate hikes

The Truss implosion was fueled by distinctly British considerations. But the market upheaval — which at one point saw investors judge Britain a worse credit risk than notoriously profligate Italy — ignited unexpected difficulties in British pension funds and started a search for the next financial domino that could topple as interest rates climb.

Bond mutual funds, pensions, corporate debt and government finances all are being scrutinized for hidden weak spots, analysts said, as the Federal Reserve continues raising interest rates at the fastest pace in 40 years. Investors expect the central bank to lift rates several times in the coming months in a bid to cool off rising consumer prices, including at its next meeting in November.

“The Fed will just keep hiking until something breaks,” said Eric Robertsen, global head of research and chief strategist for Standard Chartered Bank in Dubai. “I think it’s more likely that there will be a financial market crack before there’s an economic crack.”

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