What if life-insurer dynamic hedging amplifies a rapid JGB yield spike in a procyclical feedback loop?
A rapid yield spike forces life insurers managing duration against long-dated liabilities to dynamically hedge, and their procyclical futures selling amplifies the move, an NBFI feedback loop the FSA and IMF FSAP highlight for Japan.
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The butterfly cascade
How this trigger trickles across markets, left → right — the root shock, its first‑order moves, then the ripple effects. Drag any node; tap a market for its real price history.
Resolution timeline — how this probability is moving
Our model's odds (electric blue) over time vs the market's (Polymarket, amber), from the past toward the 6–18 months horizon. Each dot is a real macro event that nudged the probability — green pushed it up, red pushed it down. Tap a dot for the source. Loading the probability audit trail…
What it would mean
If this plays out, it is a risk-off shock. A rapid yield spike forces life insurers managing duration against long-dated liabilities to dynamically hedge, and their procyclical futures selling amplifies the move, an NBFI feedback loop the FSA and IMF FSAP highlight for Japan. The trigger decomposes into signed root‑shocks — Financial conditions ▲ · Real yields ▲ · Risk appetite ▼ · Risk-parity deleveraging ▲ — which propagate through our causal graph to the markets below.