# The Bond Selloff Spreads Beyond the United States and Pushes Traders Out of Yen Funding

Hedge funds are moving to the Swiss franc, the euro and the Swedish krona to fund carry trades after intervention made betting against the yen more dangerous.

- Published: 2026-09-16T05:10:39.518Z
- Canonical: https://polylog.news/2026-09-16/the-bond-selloff-spreads-beyond-the-united-states-and-pushes
- Publisher: Polylog (Global desk)
- Section: markets
- Sources: [The Japan Times](https://www.japantimes.co.jp/business/2026/09/16/markets/carry-traders-yen-appeal-ebbs/), [Globes (Hebrew)](https://www.globes.co.il/news/article.aspx?did=1001555541#utm_source=RSS), [Hedgeweek](https://www.hedgeweek.com/traders-eye-swiss-franc-as-yen-intervention-reshapes-carry-trade/)

Investors who borrow in a low-yielding currency to buy higher-yielding assets are turning away from the Japanese yen. [The Japan Times reports](https://www.japantimes.co.jp/business/2026/09/16/markets/carry-traders-yen-appeal-ebbs/) that traders are examining the Swiss franc and the Swedish krona as funding currencies after the yen's recent appreciation. The trigger was the unusual joint United States-Japan operation to support the yen, which [made short positions in the currency substantially riskier](https://www.hedgeweek.com/traders-eye-swiss-franc-as-yen-intervention-reshapes-carry-trade/), because a central bank willing to intervene can move the exchange rate against a crowded trade without warning.

Two shifts are happening at once. The Bank of Japan is gradually withdrawing the ultra-loose settings that made yen borrowing nearly free, and the governments of Japan and the United States have shown they will act directly in the currency market. Together, these remove the two conditions the trade depended on: cheap borrowing costs and a predictable exchange rate.

The other side of the same adjustment is visible in how asset managers now think about bonds. In Israel, provident and study funds returned 1.4 percent in August, with equity-weighted funds up 2.4 percent on the strength of the rally in United States shares, but [managers warned that rising American yields are making bonds a genuine alternative to equities again](https://www.globes.co.il/news/article.aspx?did=1001555541#utm_source=RSS) and a reason to moderate expectations for the coming months.

That is the long-end revolt working through investment portfolios. When sovereign debt pays close to 5 percent, the case for holding richly valued equities, or for borrowing cheaply to seek higher returns elsewhere, weakens on the arithmetic alone. The carry trade, which functioned for two decades as a global channel for transmitting Japanese monetary easing, is being dismantled by the same normalization that is repricing bonds everywhere.

## What this means

The yen carry trade has been one of the largest sources of leverage funding global asset purchases, and unwinding it removes a persistent source of buying demand from emerging-market debt, high-yield credit and momentum equity positions. Substituting the Swiss franc or the krona does not replace that scale, because neither market offers the same depth of yen borrowing. The immediate effect is a higher cost of leverage worldwide and a greater chance of sharp, correlated moves when positions unwind together. Asset managers gain a genuine alternative in government bonds for the first time in years, which shifts allocations away from equities at the margin and raises the minimum return every risk asset must offer to attract capital (the hurdle rate).

## What to watch

- Cross-border yen borrowing data from the Bank for International Settlements, which shows whether the funding stock is actually shrinking or simply being repriced.
- Whether the Swiss National Bank comments on franc strength, since it has intervened before and would face the same pressure Japan is facing if the franc becomes the new funding currency.
- Flows out of equity funds and into government bond funds, the clearest evidence that the higher yield is changing allocation rather than just sentiment.