Turkey Vulnerable
Turkey is at risk due to the global bond selloff because of its current-account deficit, said O’Neill. Anti-government protests in the country may have wider significance for countries in the Middle East looking to Turkey’s democracy as an example.
“For the sake of many places beyond Turkey, it would be good to see an end to this trouble,” O’Neill said. “Even without the trouble going on in Istanbul and other urban areas, Turkey would have been vulnerable.”
There is still value in assets from China as well as so- called peripheral euro-area nations, O’Neill said. The safest bonds may become less fashionable, he said.
“If the U.S. is returning to normality, which I have suspected for a while it is, and the Fed starts to change its own view about that then at some point, we have to get used to the notion of U.S. bonds being closer to 4 percent than 2,” O’Neill said.