On Thursday, Japanese government bonds saw a sell-off as market sentiment improved after Trump announced a rollback of certain import tariffs. This change prompted a shift towards equities, with the Nikkei stock index rising over 8% in morning trading.
The benchmark 10-year JGB yields increased by 10 basis points to approximately 1.377%. Bond futures decreased nearly 1.3 points, and two-year yields rose about half a basis point to 0.67%, while 30-year yields remained at 2.7%, following a 21-year high the previous day.
Market Reaction and Strategy
The bond market reaction indicated relief among traders, who moved funds into riskier assets due to reduced trade tensions.
What we are seeing here is a fast adjustment in positioning as traders respond sharply to shifts in political policy, namely the rollback of certain tariffs announced by Trump. This action, while political in nature, had a direct effect on risk sentiment, with equity markets responding enthusiastically. The Nikkei jumping over 8% in morning trading sends a very clear signal — traders are rotating out of safe-haven instruments.
The rise of 10 basis points in the 10-year Japanese government bonds tells us that prices fell, as demand eased off. Bond futures dropping by nearly 1.3 points reinforces that. It’s a notable move, especially considering this followed a 30-year yield hitting a level not seen in more than two decades. As far as short-term instruments go, the movement in the two-year yield was far less intense but still edged upwards, suggesting that expectations for economic conditions are pushing yields up across the curve, albeit unevenly.
Price Signals and Portfolio Management
From our perspective, it’s important when observing these types of moves to think in terms of behaviours rather than just numbers. People were seeking safety prior to this news. Then the change in tariff policy provided enough confidence to bring riskier assets back into focus. As a result, safe bonds lost their appeal extremely quickly. It’s not chaotic, but it’s certainly reactive.
For those of us watching price signals in derivative markets, the rebalancing is worth closer attention. Volatility in the major bond futures indicates active repositioning. If it sustains, we could expect premiums on options to remain elevated, particularly in interest rate-linked products. We should be aware that sharp equity rallies driven by policy news can be followed by uneven pullbacks, especially if the underlying economic data don’t catch up fast enough to reprice risk.
Kojima’s bond desk noted the tightness in liquidity as players rushed to offload long positions. That should prompt re-evaluation of hedging strategies, particularly within rate-sensitive structures. Effective coverage may require us to shift assumptions on near-term yield ceilings and compression timing. Long-end expressions suddenly look misaligned if topside yield bets start to flatten out.
Carefully monitoring flows into equity-linked derivatives may give an early indication of where traders expect volatility to appear next. Given that the 30-year yield held steady after touching highs a day earlier, the tail end of the curve might now be absorbing bets from institutions waiting to see whether this risk rotation lasts.
The most immediate action would be ensuring delta exposure remains properly matched in the short-term. Gamma risk has moved higher with this sort of sharp repricing, and left unattended, that could affect portfolio balance more quickly than usual. It’s simply not the week to be passive.
There’s no room to treat this as a trend yet — for now, it’s a response. But one worth preparing for as it ripples through rate structures and demand for protection further up the curve. Timing will matter more than usual over the next several sessions.
