Risks are building in the global financial markets, cautions BCA Research.

The research house says that the U.S. Federal Reserve Board’s tightening cycle poses a risk to financial markets, especially following a big buildup in leverage. “Past periods of Fed monetary tightening have typically culminated in a financial crisis,” BCA Research notes.

“This time the Fed is being as deliberate and transparent as possible to minimize any fallout as it raises interest rates. But investors need to carefully monitor key ‘canaries’ that will indicate if stresses are building in the financial system,” the company says.

“Homebuilding stocks, for example, should provide an early warning if rising interest rates begin to hurt consumers.” It also suggests that a “significant widening” of corporate debt spreads “would also be a sign that the unwinding of leverage is causing stress.”

“So far, neither of these ‘canaries’ indicate any impending problems,” the firm says. “A pickup in inflation also looms as a major source of financial sector risk.”