BIS warns of emerging market risk

Basel based Bank for International Settlement (BIS) warned of the potential impact of a Fed rate hike on emerging markets, describing the current situation as an “uneasy calm.”

Ahead of a likely Fed rate hike in December, the organisation used its quarterly report to highlight widening dollar premia in FX swap markets and growing pressure on emerging market corporate bonds among others.

The report also highlighted indicators of dislocation in fixed income markets, such as US treasury dealers bidding market yields above corresponding swap rates and a sharp increase in the cost of 10 year euro swap rates.

Despite relatively low stock market volatility throughout November, the BIS report highlighted the growth of dollar denominated debt levels and warned that portfolio outflows out of mutual funds in August and September have exceeded those during the taper tantrum.

The full report can be accessed here.

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