Japan derailed? Why the 'Widowmaker' trade is back with a vengeance

A spike in Japanese government bond volatility has raised concerns that the unintended consequences of new policy measures could further derail the equity market rally.

Even after today's 7% sell-off is taken into account, Japan's Nikkei index remains up 40% year-to-date as investors give their backing to prime minister Shinzo Abe's expansionary policies. However, benchmark 10-year bond yields have risen sharply over the past two months, from 0.3% to above 0.9%, and moved above 1% this morning for the first time in a year. That is because, investors suggest, Japanese policymakers' quantitative easing programme - the most intense asset purchase programme in the world - is already leading to unintended consequences. These include evaporating bond ma...