Watch the risk premium! (Fed taper edition)
Cam Hiu is back with an insightful look into how the taper could tamper with the risk premiums of stocks to bonds all over the world. His final statement really sums it up…
“Here is the longer term chart of EM bonds relative to US junk. EM bonds never recovered from taperitis, which is a concern given the interconnected nature of the global financial system… If EM spreads were to start reversing themselves and start blowing out, then the contagion could potentially spread to other markets and the result would be a catastrophic market sell-off.”