May provided a glimpse into how global capital markets may react to the withdrawal of central bank intervention. Under questioning before the Joint Economic Committee, Federal Reserve Chairman Ben Bernanke said the Fed could slow the pace of its asset purchase program in the next few meetings, if the economic data is sufficiently strong. Markets reacted sharply to the comment. Global equities, which had been steadily climbing prior to Bernanke’s testimony, reversed direction with the Nikkei dropping 7% in its biggest single day’s fall since the 2011 earthquake and tsunami disaster. Global bond yields also sold off although sovereign yields were already on an upward trajectory.
