Japan Bond Crash Unleashes a $7 Trillion Risk for Global Markets

Days after Japanese bonds crashed, sending tremors through global financial markets, traders were still stunned by the speed and breadth of it all. A quarter-point surge in yields “in a single session,” marveled Pramol Dhawan, a fund manager at Pacific Investment Management Co., “let that sink in.”

In the Japanese government bond market of old, it would take weeks — sometimes months — for yields to eke out, tick by tick, a move of that magnitude. For most of the 21st century, the JGB market was so steady — and interest rates were stuck at such rock-bottom levels — that Tokyo was viewed by investors around the world as a source of both cheap funding and of stability during times of global turmoil.