China can give the world’s financial markets the jitters for a few days, but it takes events in America to make a real long-term difference. The recent 15 per cent drop in Shanghai share prices had few repercussions in London or on Wall Street, but share prices have been rumbling all over the developed world since the US Treasury bond market turned down, pushing yields close to UK gilt-edged.

There were local reasons for the initial fall. Foreign investors turned up their noses at the latest US Treasury issue, even though sentiment towards the dollar has improved. But the usual niceties of arbitrage between bonds, shares and cash hardly apply here. At stake is the basis for the boom in takeovers, private equity and emerging market debt: an abundant supply of historically cheap credit.

US investors are not sure whether inflation has become entrenched at a time of low growth, which would be a poisonous formula for bonds and shares, or whether the US economy is just getting back into its stride. Ben Bernanke is not sure either, but the Fed has hinted that cuts in short-term interest rates are off the agenda for a while. Even Alan Greenspan, still commenting in the wings, is not sure.

Either way, few fund managers see much reason to buy dollar bonds, which have long been subsidised by Chinese savers. That need not mean the cost of corporate bonds or medium-term loans is about to shoot up, making life hard for borrowers with variable-rate debt, but yields may well keep edging ahead.

Conventional corporate takeovers and the leveraged deployment of this year’s bumper private equity subscriptions have been driving market activity and share values. For every ten basis points that long-term interest rates rise, the less attractive high-priced targets, or even refinancings, will look. Lenders will not just be looking to charge more. They will be more chary of risk. The era of ultra-easy credit may be coming to an end. If so, it will affect markets far beyond Wall Street, which have been driven by momentum, more than rational valuation. US and European shares may be at the end of this line but the seismic rumbling in the US bond market can only add to the underlying climate of fear.

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