Global sentiment turned sour on Thursday as major equity and fixed income markets around the world saw a strong selloff amid rising volatility.
European indexes bore the brunt of the selling early on Thursday, with the French CAC index posting losses of over 2 percent at one stage, with the German DAX and the U.K.'s FTSE not far behind. This came after a gloomy session in Asia, where China's Shanghai Composite index chalked up a third straight day of steep declines, diving 2.8 percent.
Read MoreRising rates could contain stocks
U.S. stock index futures indicated a sharply lower open on Friday, with Dow futures indicated a fall of over 100 points at the open. On Wednesday, major benchmarks in the U.S. closed lower after reversing a positive open.
"Stocks began the week pushing towards new records, but increasing global market turbulence, including 2015 highs in crude oil, plummeting Chinese shares, political uncertainty in the U.K.—not to mention the widespread dumping of government bonds—has seen the tide turn lower," Jasper Lawler, market analyst at CMC Markets, said in a research note.
Stock markets were also pressured after Federal Reserve Chair Janet Yellen said on Wednesday morning in a conversation with IMF Managing Director Christine Lagarde that equity valuations were generally quite high. This helped spark the global selloff.
"The linkages across global markets have become quite stark and they all tie back to the Federal Reserve. That being the case, Fed Chief Janet Yellen's comments on Wednesday that stocks look a little overvalued didn't help matters," said Lawler in his note.
With regards to debt markets, the continued rally in oil is seen as negative for sovereign bonds in Europe and the U.S., as it has raised expectations of future inflation—and inflation is seen as benefiting riskier assets like stocks, instead of fixed income.
There's also fears from China, due to uncertainty over further government measures to curb market speculation and stimulate the economy, plus the possibility that new stock listings may sap funds from existing equities.
Soft debt auctions in Europe extended a selloff in bonds early on Thursday. Yields - which move inversely to prices – on German Bunds are now on course for the biggest weekly rise in a decade, according to Reuters.
German 10-year yield soared to 0.73 percent by 11 a.m. London time on Thursday. This compared to a yield of around 0.35 percent at the start of the trading week.
French and U.K. yields were also on the rise and the Spanish 10-year yield rose above 2 percent for the first time since November 2014.
The U.S. 10-year Treasury had reached 2.274 percent by 11 a.m. London time, after closing at 2.24 percent on Wednesday.
Volatility climbed higher, with the VSTOXX index, a gauge of fear in Europe markets, rising to 25.67 on Thursday, the highest seen since the middle of February.