Japan’s $7.2 Trillion Bond Market Wiped Out by Just $280 Million of Trading

It took only about $280 million of actual trading to trigger a massive sell-off in Japan’s government bond market, sparking roughly $41 billion in losses across the yield curve and unsettling global markets. That relatively tiny amount of turnover was enough to set off a dramatic market move in what’s normally one of the world’s deepest and most stable bond markets.

The meltdown hit especially hard in ultra-long bonds, including 30-year and 40-year Japanese government securities, where liquidity is thin and turnover was particularly low when selling accelerated.

Analysts point to weak liquidity and reduced central bank support after the Bank of Japan scaled back its massive bond purchases, leaving the market more vulnerable to sharp price swings on even modest volumes. Foreign investors now account for a larger share of trading, and many domestic institutions have reduced long-dated holdings, amplifying volatility.

The rout has also rippled into other markets, pushing up yields elsewhere as risk parity and global fixed-income strategies adjust to the repricing in Japan and rising yields.