"I think this has more room to go. It's been about a year in the making. We've barely seen much of it yet," said Marc Chandler, chief currency strategist at Brown Brothers Harriman. "Some large funds like BlackRock have indicated they are beginning to take profits on it. Then the EU and IMF expressed concern that those bond market rallies were not going to be sustainable."
Trader chatter has increased about the fact the selloff in Europe could lead to more caution about risk exposure in other areas of global fixed-income markets.
"While there's not been wholesale selling and aggregate index performance has turned in solid results, underlying trends suggest a consolidation in risk exposure," said Adrian Miller, director fixed-income strategy at GMP Securities.
Miller said he studied month-to-date performance in the high-yield market. "Two-thirds of the names have underperformed. That speaks to breadth," he said. "Obviously people are not running from U.S. high yield. It's still getting inflows, but there is that general overtone and questions of valuation that are running through the market."
He said, however, there is a more marked weakening in the European high-yield market. "There are obviously degrees of magnitude, but the concerns about risk exposure are really showing up in Europe right now and emerging markets as well," Miller said.
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Steven Antczak, head of U.S. credit strategy, said he believes the weakening of some U.S. high- yield issues is more about fundamentals at specific issuers.
"I think the typical PM is less inclined to react to something that is very exogenous," he said. "The typical PM is more inclined to move to neutral than short the market or sell it off. I think the reaction will be to sit and wait and see."
The selloff started at the same time U.S. rates moved dramatically lower, with the U.S. 10-year yield dipping below 2.5 percent last week for the first time since July and the largest weekly drop in yield since early January. Investors had piled into short positions on expectations the Federal Reserve's move to taper back its quantitative easing bond purchases would push yields higher.
"One thing that I think has been driving the move in the periphery is the flip side of what's been driving the move in U.S. Treasurys," said Ralf Preusser, head of European rate research at Bank of America Merrill Lynch.