In the wake of the global financial crisis of 2007-08, a hike in US Federal Reserve rates sparked unease in emerging markets, where investors had been chasing yield ever since the world’s three key central banks – the US Federal Reserve, the European Central Bank (ECB) and the Bank of Japan (BOJ) – implemented extra-low interest rates and aggressive quantitative easing (QE) programmes.
When in 2013 the Fed announced it would start cutting back on its bond purchases, investors were scared away and US Treasury yields shot up. This was the beginning of the so-called ‘taper tantrum’, with investors taking money out of emerging markets to chase higher yielding Treasury bonds, resulting in capital outflows and currency devaluations. In Asia, Indonesia and Malaysia were hit particularly hard.
