BIS Warns That “Uneasy Calm” In Markets May Be Shattered By Fed Hike Imperiling $3.3 Trillion In EM Debt

• BIS Warns That “Uneasy Calm” In Markets May Be Shattered By Fed Hike Imperiling $3.3 Trillion In EM Debt
  by Tyler Durden, www.zerohedge.com 
  Claudio Borio has been pounding the table on complacency and mounting market risk for quite some time. It was exactly one year ago that the BIS’ Head of the Monetary and Economic Department penned the following warning about the market’s dependence on central bank omnipotence:  
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  To my mind, these events underline the fragility – dare I say growing fragility? – hidden beneath the markets’ buoyancy. Small pieces of news can generate outsize effects. This, in turn, can amplify mood swings. And it would be imprudent to ignore that markets did not fully stabilise by themselves. Once again, on the heels of the turbulence, major central banks made soothing statements, suggesting that they might delay normalisation in light of evolving macroeconomic conditions. Recent events, if anything, have highlighted once more the degree to which markets are relying on central banks: the markets’ buoyancy hinges on central banks’ every word and deed.
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  Then, in March, he spoke out about the dangers of increasingly illiquid secondary markets for corporate bonds:
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  As a result, market liquidity may increasingly come to depend on the portfolio allocation decisions of only a few large institutions. And, more broadly, investors may find that liquidating positions proves more difficult than expected, particularly in the context of an adverse shift in market sentiment.
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  What do the changes in market-making described here mean for markets and policy? There are at least two key issues. First, reduced market-making supply and increased demand imply upward pressure on trading costs, reduced secondary market liquidity, and potentially higher financing costs in new-issue markets. Second is the question of how markets will behave under stress – that is, whether they will be able to function in an orderly fashion in response shocks or broad changes in market sentiment… 
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  Finally, in September, Borio delivered the following rather dramatic assessment of an overleveraged world hooked on central bank stimulus: 
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