LIVE MARKETS-JGB selloff raises margin call risks, may trigger intervention

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JGB SELLOFF RAISES MARGIN CALL RISKS, MAY TRIGGER INTERVENTION

The sharp selloff in Japanese government bond yields raises the risk of margin calls and de-risking that could reverberate across markets. It also increases the odds of a government intervention to curb the move, according to TD Securities.

“Long‑end JGBs continue to bleed, selling off nearly 80bp since PM Takaichi took office in October,” Pooja Kumra, senior European & UK rates strategist at TD said, in a note. And “the shock is transmitting across global rates.”

Traders are concerned that Japanese Prime Minister Sanae Takaichi will implement looser fiscal policies and exert a more dovish influence on monetary policy if her Liberal Democratic Party wins a snap general election.

Takaichi on Monday called for the election with a vow to suspend an 8% food levy for two years, echoing proposals by her rivals despite the potential strain on the country's already precarious finances.

“A weaker yen raises the risk of Japanese investors selling foreign holdings. However, Japanese investors already slowed their purchases in 2025, potentially mitigating outflows,” Kumra said.

Japan’s government bonds are largely held domestically although the recent yield increases have encouraged more foreign participation. These non-domestic investors could become key contributors to the move. Investors will also need to absorb auctions of 30-year and 40-year bonds before the February 8 election.

“Given the pace of the move, intervention (BoJ & MoF) is plausible,” Kumra said, adding that “fiscal policy easing could also be deferred.”

(Karen Brettell)

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