What I am concerned about is the re-emergence of tail-risk in the emerging markets. The Fed’s QE tapering has signaled that risk premiums are likely to rise (see my previous post Regime shift = Volatility). The Fed’s QE program was intended to push down Treasury, and later, MBS yields and to compress risk premiums in order to encourage market participants to take more risk and kick start economic growth. As the Fed signals that it is starting the process of unwinding this program, risk premiums are likely to rise.
