Citigroup Warns Japanese Bond Volatility May Trigger Fund Rebalancing, Potentially Sparking Up to $130 Billion in US Treasury Sales

Deep News01-21

Citigroup Global Markets indicated that a sharp rise in Japanese government bond volatility "has the potential to exacerbate turbulence in other asset classes, particularly US Treasuries, necessitating a reduction in overall portfolio size."

In a report to clients on Tuesday, Mohammed Apabhai, Head of Asia Trading Strategy, wrote that risk parity funds might need to sell up to one-third of their current exposure, which could trigger bond sales of as much as $130 billion in the US alone.

Apabhai pointed out that the South Korean government bond market is also highly vulnerable to increased volatility in Japanese bonds. Since July 2024, the cumulative losses for foreign investors purchasing South Korean government bonds have exceeded 10%, raising the risk of triggering stop-loss selling; UK government bonds could potentially face similar risks.

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