Markets prepare for “chaos and turmoil” as Japan sees dramatic bond yield movements | The Business
We could be in for a night of a bit of a chaos and turmoil as the yen carry trade which is a very common trade where people are short yen and then invest in these speculative assets um a lot of that could come out of the market. So we’re watching this very closely. Matthew, you’ve been paying close attention to some dramatic bond yield movements in Japan. Can you take us through what is unfolding? Yeah, big moves in Japan bond market today. So, there’s been big selling. So, interest rates are going up across the curve in Japan. Um, it’s getting to almost like an uncontrolled uh sell-off in bonds when when the bonds are sold off um yields are going up. Um, and what happens is when this um trans um transfers through the rest of the market, a lot of the um momentum and growth and risky assets get sold. So, we’re starting to see early signs of this happening. Um whether it um flows through to European sessions and US sessions um yet to be told, but it looks like early signs are it’s hitting futures in these markets. So, we could be in for a night of a bit of a chaos and turmoil as the yen carry trade, which is a very common trade where people are short yen and then invest in these speculative assets. Um a lot of that could come out of the market. So we’re watching this very closely um and seeing how unfolds overnight. Okay. And so are you yourself considering making some trades on the basis of what you’re seeing? Yeah. I mean with one of the products we we have we have the ability to use futures to take out risk and it’s something we’re actively looking at at the moment whether we uh take out some hedging overnight to protect from some of this selloff. But um like I said uh early hours uh in the Asian sessions and leading into European futures and uh US market opens a lot can change. So we just don’t want to um be do a bit of a head fake off the basis of this but it’s something we’re de developing at the moment and we’re really watching it because it could lead to a broader selloff. What prompted it Matthew? Um I think it was really it’s been happening in the background for about a week and a bit. Um and more broadly for maybe 12 months as the Bank of Japan are going on a hiking cycle. Um then you had added on top of this some fiscal policy stimulus was put out a couple of weeks ago. So all these things have been building. Then we had a speech out from the the Bank of Japan today um saying they will be hiking if things go according to plan. So, I mean, it’s really just a continuation of a sell-off um that’s been happening for a while, but it’s largely been ignored by investors as there’s been a lot of other issues to deal with, but this can be quite big news and has global impacts as well. So, the ASX 200 saw its weakest November performance in 11 years. Do you think December might be off to a bit of a volatile start? 100%. It’s going to be volatile in these next few days as as the world will start paying attention to the Bank of Japan and uh Japanese government bonds. So it’s really going to be a little bit of a riskoff moment at this point in time. But again, we think with the end of QT happening in the US now. So quantitative tightening is over. U we think the Fed will ease um policy or bank reserves. So we think December the Christmas rally is intact still, but it’s going to be a fairly volatile few days uh this week. Okay, Matthew H. good to speak to you. Thank you. Thank you.
Analysts will be paying close attention to Japanese markets overnight and for the next few days after some big moves in the bond markets, which has seen interest rates rise across the curve.
Wilson Asset Management lead portfolio manager Matthew Haupt is forecasting a potential night of “chaos and turmoil” as the yen carry-trade unwinds. He says it appears as though there’s been an uncontrolled sell-off in bonds.
“When this transfers through the rest of the market, a lot of the momentum and growth and risky assets get sold … we’re starting to see early signs of this happening, whether it flows through to European sessions and US sessions, that’s yet to be told,” he said.
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