Japanese Bond Panic

JGBs sell off

Published: April 25 2008 09:38 | Last updated: April 25 2008 18:52

It takes a lot to rattle Japanese government bonds. But on Friday, the world’s biggest bond market went into freefall. The yield on 10-year JGBs jumped 12.5 basis points to 1.6 per cent. Futures trading screeched to a halt – the first enforced stoppage since new systems were introduced at the start of the year.

Part of the rush for the exits can be explained by global concerns about higher inflation. The $6,700bn JGB market has a habit of selling off when US interest rates bottom. Many expect a cut next week by the US Federal Reserve to be the last in this cycle. Against this backdrop, foreigners were keen to reduce their positions.