A fragile calm in global financial markets has given way to all-out turbulence, the Bank of International Settlements said on Sunday (Mar 6), warning of a "gathering storm" which has long been brewing.
In its previous quarterly report, watched closely by investors, the BIS - which is known as the central bank of central banks - warned of an "uneasy calm" in global markets, after monetary authorities took stabilising measures to offset the consequences of a dramatic slowdown in China.
In the bank's new report, BIS chief Claudio Borio said "the uneasy calm has given way to turbulence."
"The tension between the markets' tranquillity and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution," he added.
"We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time," he warned.
Borio surveyed the major disruptions over the last three months, from the first post-crisis interest rate hike by the US Federal Reserve in December, to accumulating signs of China's slowdown.
In what he termed the second phase of turbulence in the last quarter, Borio said markets were plagued by fears about the health of global banks and the Bank of Japan's shock decision to impose negative policy rates.
Persistently weak oil prices drove turbulence throughout the quarter, he said.
Seeking to find a common threat for the various global trends at play, Borio said "debt is what helps us understand apparently unrelated developments."
"Against the backdrop of a long-term, crisis-exacerbated decline in productivity growth, the stock of global debt has continued to rise and the room for policy manoeuvre has continued to narrow," he said.
Public sector debt has risen broadly, while private sector debt rises have been concentrated in emerging markets, he added.
He argued that debt also offered a "hint" on the continuing weakness of oil prices as "highly indebted oil-producing firms come under pressure to keep the spigots open to meet their service burdens."