Market dip highlights US equities as a key risk

Significance

Global markets are being unsettled by a confluence of negative factors, especially a sell-off in government bonds that has raised the yield on 10-year US Treasuries by 10 basis points to 3.16%, 35 basis points higher than in August. The fierce moves in fixed income are reviving fears about a full-blown bear market in bonds.

Impacts

• Widening policy divergence will boost the dollar; 10-year US Treasury yields are rising faster than their German and Japanese equivalents.
• Pressure will persist on fragile emerging markets (EMs) and the entire asset class; investors have sold EM equity and bonds in October.
• Spreads on dollar-denominated EM corporate bonds fell this month, defying worries about high EM corporate debts, but fears will persist.