The term "risk-off" in bond trading and, more broadly, in financial markets refers to a sentiment or trading strategy where investors move away from riskier assets to safer, more secure investments.
This shift typically occurs in response to economic uncertainty, geopolitical tensions, or financial market instability, leading investors to prioritize capital preservation over higher returns.
In bond trading, a risk-off environment usually results in higher demand for government bonds, which are considered safer due to their lower risk of default. This increased demand drives up the prices of these bonds and lowers their yields.
Risk-off moves often don't last long, but when they do, it usually results in falling fixed mortgage rates.
Risk-on bets are the exact opposite, reflecting a shift into riskier assets than government bonds, thus increasing government bond yields.