Bond bulls hoping Japan’s deep-pocketed investors can arrest the global debt rout are in for a surprise — they are furious sellers, to a degree that’s causing problems for crucial parts of the market’s plumbing.
Japanese funds sold a record $34 billion of foreign bonds in the two weeks ended Feb. 26 as the nation’s fiscal year-end in March approaches — enough to cause reverberations in U.S. repurchase markets for 10-year Treasuries.
What started out as a re-balancing of books by Japanese funds has added to the volatility in global markets, with Treasury yields rocketing to levels seen before the pandemic, as a vicious cycle unfolds as selling begets more sales. The dumping from Japan, one of the biggest owners of debt, triggers hedging by dealers on the other side of the trade, which in turn impacts crucial funding markets relying on bonds as collateral.