German Bond Volatility and Lessons from Japan

The stunning rout in German bonds over the past week has left many investors dumbfounded.  With an 800% increase in yield over a matter of days that wiped out roughly $450 billion dollars according to the Wall Street Journal, German bonds have experienced an unprecedented level of volatility for the so-called “safe” asset.  

As a result, comparisons are being made between this reversal and the one seen in the Japanese bond market in 2003.  While it is tempting to compare chart paths and infer the future, the real take away from 2003 is that the extreme volatility ended up chasing money away from bonds and into equities.  In fact, Japanese equities were up over 40 percent in over the following twelve months.

For more on German bond volatility from the Financial Times, read here.

For more on the comparison between the current German bond market and the Japanese bond market in 2003 from Bloomberg, read here.