Emerging markets have a habit of triggering volatility in their developed market counterparties, as we have seen in recent days. But the trend was exacerbated today with fairly large swings in credit and equity.

Turkey was the main focus this morning after the central bank raised its repo rate from 4.5% to 10% and the top rate from 7.75% to 12%. The hikes were far larger than expected and were a brave move given the political pressure to stay on hold.

Initially, it appeared that the markets would reward this courage, with Turkey's sovereign CDS tightening by 23bps to 233bps. Western European spreads also rallied by significant amounts.

But the optimism proved short-lived. By the end of the day, the Markit iTraxx Europe was 2bps wider at 82bps and the Markit CDX.NA.IG 2.25bps wider at 72bps. Turkey's spreads, meanwhile, were just 4bps tighter at 253bps, more than 140bps wider than where they were trading prior to the "taper tantrum" last May.

The positive sentiment seemed to evaporate during the afternoon. Turkey's rate hike may be seen as brave but ultimately insufficient given the large current account deficit, the difficult funding climate in a post-QE environment and the tense domestic political situation. The monetary policy tightening will also impinge on growth.

Turkey's central bank wasn't the only one to take unexpected action. South Africa, another country with a sizeable current account deficit, raised rates by 50bps to 5.5%, a move that few had foreseen. Despite the surprise element, however, it had only a fleeting strengthening effect on the rand, and the sovereign's CDS spreads ended the day 11bps wider at 232bps. This is the widest level since early September 2013.

Attentions will now turn to the FOMC meeting today, the last to be chaired by Ben Bernanke. The Fed is expected to taper QE by another $10bn, and this should be priced into spreads. The consensus seems to be that the Fed will ignore the current fluctuations in emerging markets.

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