The Japanese bond market is like a "value trap" and foreign investors are deeply caught in it.

At the end of last year, after Japanese bonds were sold off, Brendan Murphy discovered a trade that was too good to miss. The fund manager at Insight Investment heavily bought 30-year Japanese government bonds, as their yields were near historic highs due to rising inflation causing bond prices to fall. In addition to using forex derivatives to arbitrage the US-Japan interest rate differential, this trade was expected to bring in returns as high as 7% annually. Of course, this largely depended on the Bank of Japan successfully containing consumer prices - something Murphy and other international investors believed was a certainty at the time. However, so far, this trade has backfired. The Bank of Japan has been slow to raise interest rates since January, and high inflation has once again hit the prospects of long-term bonds. As the global bond market is once again engulfed in a sell-off, the yield on Japanese 30-year government bonds reached a new high this week, surpassing 3.2%, wiping out Murphy's profits. "We still think this trade is very attractive," Murphy said, not giving up yet. "But it hasn't worked out so far."