Spike in US short-dated bond pressures emerging market assets, while US rallies European allies with another round of sanctions on Russia and Belarus.
New US sanction threats have weighed on the Russian and Belarus currencies while an index of developing world shares fell to its weakest level in four weeks as the recent spike in US short-dated bond yields pressured emerging market assets.
Russia's rouble extended its slide, down 0.4 percent to hit a two-week low against the dollar, while yields on 10-year bonds ticked up.
US President Joe Biden's national security adviser Jake Sullivan told CNN on Sunday that the United States has rallied European allies and is preparing another package of sanctions on Russia over Moscow's alleged poisoning of Kremlin critic Alexey Navalny last year.
"I think the events will continue to weigh on Russian assets, but on the other hand Russia's balance sheet is relatively strong and that keeps them quite insulated from substantial pressure," said Trieu Pham, an EM debt strategist at ING.
In neighbouring Belarus, the currency retreated from 10-month highs against the euro.
Its dollar bonds sold off too after the European Union said it will on Monday impose travel bans and asset freezes on 86 Belarusian individuals and companies, and leave the decision on when to impose economic sanctions to leaders.
Belarus' dependence on Russia
The measures are in response to the forced landing by Belarusian authorities of a Ryanair passenger plane in Minsk on May 23 to detain a journalist.
"It will certainly push Belarus more into Russia's arms ... The more Belarus is isolated from the West, it will depend on more financial support from Russia and that will drive the pricing on Belarusian euro bonds," ING's Pham said.
With most Asian peers also in the red, and Turkey's lira hitting all-time lows against the dollar, MSCI's index of EM currencies plumbed a five-week low.
South Africa's rand firmed 0.6 percent, after tumbling almost 5 percent last week — its worst week in more than a year.
Hungary's forint and Poland's zloty gained 0.3 percent each against the euro. Hungary's central bank is expected to raise its base rate by 25 basis points to 0.85 percent at its meeting on Tuesday.
Emerging market shares slipped 1 percent as markets considered repercussions of sooner-than-expected tightening of US monetary policy following signals by the Federal Reserve last week.
The Shanghai Composite, however, closed up 0.1 percent supported by tech stocks.
JPMorgan on Sunday cut China's growth forecast to 5.3 percent from 5.6 percent for the second quarter on slower-than-expected consumption recovery in the near term.