The Fed is breaking things’ – Here’s what has Wall Street on edge as risks rise around the world. Markets entered a perilous new phase in the past week, one in which statistically unusual moves across asset classes are becoming commonplace.

Surging volatility in what are supposed to be among the safest fixed income instruments in the world could disrupt the financial system’s plumbing, according to Mark Connors, former Credit Suisse global head of risk advisory.

That could force the Fed to prop up the Treasury market, he said. Doing so will likely force the Fed to put a halt to its quantitative tightening program ahead of schedule.

The other worry is that the whipsawing markets will expose the weak hands among asset managers, hedge funds and other players who may have been overleveraged or took on unwise risks. Margin calls and forced liquidations could further roil markets.

After being criticized for being slow to recognize inflation, the Fed has embarked on its most aggressive series of rate hikes since the 1980s. From near-zero in March, the Fed has pushed its benchmark rate to a target of at least 3%. At the same time, the plan to unwind its $8.8 trillion balance sheet in a process called “quantitative tightening,” or QT — allowing proceeds from securities the Fed has on its books to roll off each month instead of being reinvested — has removed the largest buyer of Treasurys and mortgage securities from the marketplace.  

“The Fed is breaking things,” said Benjamin Dunn, a former hedge fund chief risk officer who now runs consultancy Alpha Theory Advisors. “There’s really nothing historical you can point to for what’s going on in markets today; we are seeing multiple standard deviation moves in things like the Swedish krona, in Treasurys, in oil, in silver, like every other day. These aren’t healthy moves.”