Regardless of Fed, This Is the Big Tail Risk

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Stocks and bonds globally have been hit hard in the past month by fears about when U.S. monetary stimulus will end and remain at risk of further heavy pummeling even if the Federal Reserve sheds light this week on the outlook for its policies, some analysts say.

The Fed concludes a two-day meeting on Wednesday and is expected to calm market jitters about when it will start to unwind its $85 billion worth of monthly bond purchases to aid a recovery in the U.S. economy.

(Read More: Fed May Not Be Able to Tame Volatile Trading)

Still, markets remain at risk of a heavy sell-off because the mentality driving trade has changed compared with just a few months ago, says Laura Fitzsimmons, vice president for futures and options at JPMorgan Investment Bank.

"It [a significant downturn in bonds and stocks] is something that investors are worried about," she told CNBC Asia's "Squawk Box."

"In May, we saw these correlations break down, especially the bond, equity correlation that had been strongly in inverse in the risk-on, risk-off period. Now markets have moved out of that period and it is more about liquidity and the removal of central bank stimulus," she added.

(Read More: Markets More Doubtful of Fed Easing Benefits: CNBC Survey)

The yield on the benchmark 10-year U.S. Treasury yield has risen more than 50 basis points since early May, while U.S. stocks are down a modest 2 percent from their May peaks.

In fact, markets globally have been rattled by the prospect of the Fed taking back its stimulus – emerging markets have suffered heavy losses, while stocks in Asia and Europe are well off the peaks hit in May.

(Read More: For Some Areas, the Fed Taper Already Has Begun)

"There could be a chance of a tail event that bond and equity prices plummet. At this stage, it's not our base-case scenario, but it is something we are pointing out as a risk," Fitzsimmons said, adding that she would not rule out a further 5 to 10 percent retracement in stocks, with U.S. and Japanese shares especially vulnerable.

Fire Drill

According to Manpreet Gill, senior investment strategist at Standard Chartered Bank, the recent sell-off in markets could be a test run of what is to come if the Fed does start to take back the monetary stimulus that has provided a significant boost to risk assets and kept government bond yields low over the past few years.

"Since early May, we've had a 'fire drill' if you like of what might happen if the Fed signals that it will slow the pace of easing even though policy will remain very loose," he told CNBC Asia's "Cash Flow."

"And what that tells us is that there are quite a few imbalances in the market. If you hold government bonds and you have interest rate risk, that's the worst place to be. If you carry short-duration, credit risk, that's a better place to be. And if you hold equities, then weakness there could continue," he said.

Some analysts say that given uncertainty about where Fed monetary policy is headed, interest in holding cash or dollar exchange traded funds has grown.

(Read More: Here's What Is Benefiting From Fed Tapering Fears)

Other market watchers said the dramatic moves in markets seen recently were unlikely to be repeated.

"Now that we know an end to QE [quantitative easing] is on the table, the ability to shock markets is limited," said Tim Condon, head of research for Asia at ING Financial Markets. "We have been through a lot in the last three weeks."

— By CNBC.Com's Dhara Ranasinghe, Follow her on Twitter: @DharaCNBC