The reflation euphoria has a dark side for emerging markets

"If a particular allocation across the risky markets spectrum should be low confidence this year, it is the EM overweight," JPMorgan's John Normand wrote in a note to clients on Wednesday

Rising Treasury yields risk pulling the rug out from under the rally in emerging markets, denting one of the street’s favorite trades of the year.

The prospect of a strong economic rebound and hefty US stimulus has strategists at Goldman Sachs Group Inc. and money- managers at Amundi lending their voices to the bull case in the developing world. But the rout in Treasuries that these forces have unleashed should keep investors on their guard, according to JPMorgan Chase & Co.

“If a particular allocation across the risky markets spectrum should be low confidence this year, it is the EM overweight,” JPMorgan’s