Fasten your seatbelts. And expect lots of turbulence.
If that was the message Ben Bernanke was trying to deliver when he said the Federal Reserve could soon start scaling back its massive stimulus program for the US economy, it's safe to say investors received it loud and clear.
In fact, the sell-off in stocks, bonds and commodities that rippled around the globe after Bernanke's remarks looks to some like the dawn of a new period of volatile, disorderly trade - a stark change from the calm that prevailed since the Fed began its most recent bond-buying program last autumn.
"When market regimes shift, they rarely do so in an orderly fashion - look at equity prices collapsing at the end of the dot-com bubble or the height of the financial crisis," said Stephen Sachs, head of capital markets at exchange-traded fund issuer ProShares in Bethesda, Maryland. "It usually gets violent. We're going to face that in interest rates now."
Indeed, the bond market is at the epicenter of the financial market earthquake that Bernanke unleashed. Benchmark yields, which Fed easing had driven to record lows, surged to near two-year highs and are expected to keep climbing as traders come to grips with the prospect of the Fed ending bond purchases by mid-2014.
The aftershocks have rattled markets from Tokyo to Sao Paulo, and assets that had been top performers plunged. US credit markets were hammered, with the gap between junk bond yields and Treasuries hitting their widest so far this year, while global equity markets lost $1 trillion on Thursday alone.
The brute force of the decline caught some by surprise, since Bernanke warned in late May that the Fed could slow its bond buying later this year. Even so, watching long-term interest rates rise 0.4 per centage points for the week - the biggest move in more than 10 years - after trading for months near record lows was a wake-up call.
"People live in denial all the time," said Kim Forrest, senior equity research...