The View | Political crisis in Italy revives fear of a euro-zone meltdown. How far will markets be spooked?

Ask emerging market central bankers what has been at the top of their list of concerns over the past several weeks, and it is clear what their answer will be: the sudden surge in the US dollar and Treasury yields as bond investors begin to price in a faster pace of monetary tightening by the Federal Reserve.

The significant shift in perceptions of US monetary policy, triggered by the recent rise in inflation expectations, has been the most significant development in financial markets this year, sparking an eruption of volatility in early February and subsequently inducing a sharp sell-off in developing economies.

Yet, while the repricing of US interest rate expectations has been the main driver of markets in recent months, another major development is beginning to affect investor sentiment: renewed concerns about the stability and integrity of the euro zone stemming from the escalation in political risk in Italy, the euro-zone’s third-largest economy and now the main source of stress in markets.