Stock markets and bond markets around the world are wobbling over the impact of higher interest rates. But why are financial markets so rattled?
Traders are worried by the market direction
What is happening to interest rates?
The last few years have seen very low interest rates around the world.
Central banks have kept short-term interest rates low as inflation seemed contained and growth was modest, especially in Europe and Japan.
And the bond markets, which set long-term interest rates, have also kept long-term rates - which normally are higher because of worries about future inflation - near the same low levels.
This has allowed companies and individuals to borrow more money than usual.
But now the era of low rates may be coming to an end.
Central banks around the world are raising rates, worried about growing inflationary pressures.
And bond markets have fallen sharply, raising the cost of long-term borrowing, as investors feel that risks have been under-priced.
What has been the effect of low interest rates on markets?
Low interest rates have helped to fuel a stock market takeover boom in the last few years.
Private equity firms found that they could borrow money cheaply on capital markets in order to buy up under-valued companies and take them private.
They funded such purchases by loading up the companies with debt.
More than a third of the record $1 trillion (£500bn) in takeover activity this year has been funded by private equity.
And cheap rates also allowed speculation in currency markets as investors borrowed in currencies with low interest rates, such as the yen, in order to buy those with higher rates.
Banks and other financial institutions have been able to make large profits by taking in share in these activities.
What was the effect of low interest rates on consumers?
Low interest rates have helped to fuel a consumer boom in the US and the UK, with consumers loading themselves up with debt in order to continue spending.
Low interest rates also contributed strongly to the house price boom, with house prices tripling in the UK and doubling in the US in the past five years.
And in the US, the low rates encouraged firms to sell mortgages to people with low credit ratings who might not normally have been able to get a loan, the so-called "sub-prime" mortgage market.
Now consumer debt levels are near all-time highs.
How will rising rates affect financial markets?
Rising interest rates could dampen down stock markets for several reasons.
First, the takeover boom fuelled by private equity could come unstuck.
The higher cost of borrowing is already taking its toll, with some deals being withdrawn and others refinanced.
Secondly, shares in many of the big banks could fall.
Many have bought up bundles of debt that include many sub-prime mortgages.
Some of the biggest US investment firms, such as Bear Stearns, have had to bail out these funds when they threatened to go belly-up.
What are the wider risks?
The world's banking regulators are worried about "contagion", where a problem in one part of the banking system can spread rapidly to other sectors.
Since many banks have taken a share in these potentially bad debts (through the use of "collaterised debt obligations"), a collapse in their value could affect the banking sector as a whole.
And with the rise of globalisation, problems in one country, such as the US, can spread rapidly around the globe.
Regulators are concerned that the complexity of the financial instruments used means that no one can accurately measure the risk.
How could consumers be affected?
Rising interest rates could have both direct and indirect effects on consumers.
Higher mortgage and credit cards costs could slow down economic growth and lead to more housing defaults.
A slowdown in stock and bond markets, and a collapse in the housing market, could also affect spending more generally if consumers feel less wealthy, and could also reduce the value of their pensions.
A bigger threat could emerge if the banking sector comes under severe pressure, which could lead to a general collapse of confidence.
This - although unlikely - could be much more serious, and cause a severe recession as firms and individuals found it very difficult to raise cash or borrow for investment.
What has caused the changes?
Markets seem to have suddenly revised their general view of risk.
What has been unusual in recent years has been that the cost of lending money to the US government - through Treasury bills - has been much the same as lending to a dodgy company or a rapidly developing (but unstable) country, or giving a mortgage to an individual who had a poor credit record.
Now lenders that have woken up to the risky nature of some of their lending.
So we can expect that it will become harder to get funding for risky investments - which could affect everything from growth in developing countries to venture capital for technology investments.