(Adds graphic, quotes) LONDON, Oct 28 (Reuters) - Global short-end government bonds extended a major sell-off on Thursday with two-year debt yields on track for their biggest spike in years, spooking investors and raising concerns on the impact of these large moves on leveraged portfolios. Traders noted the Aussie bank bill yield spike overnight was the biggest three-day change since 1996 and the Canadian debt yield spike is the biggest move since 2009. The moves even rippled over into the deeply liquid U.S. bond markets, with two-year U.S. Treasury yields posting their biggest two-day rise since the pandemic-fuelled selloff in March 2020. Germany’s 2-year bond yield is at its highest in 15 months. “What is happening now runs beyond macro, it is a plain and simple Value at Risk (VaR) shock driven by positioning and the inability to appropriately calibrate central bank reaction functions in such an uncertain environment,” George Saravelos, a strategist at Deutsche Bank said in a note to clients. A VaR shock is essentially a jump in the maximum loss an investment can sustain over a period of time. Trading desks allocate budgets depending on historical ranges an asset trades in stretching back to a few years. But if prices fall as rapidly as they have this week, then investors are forced to unwind their positions to prevent deeper losses. “This is the closest we can get to a distressed market,” he said. While ordinarily, these moves would impact other asset classes such as currencies and equities, traders said the relatively contained moves in longer-term debt has cushioned a sell-off in other markets. A gauge of currency market volatility held well below a three-month high hit earlier this month while a stock market indicator held near 2021 lows. “One of the things stopping yields affecting currency markets to the same degree as traditionally is that the outlook for terminal rates still remains low, and hence longer dated instruments are showing less sensitivity to short end moves than usual,” said Stuart Cole, a macro economist at Equiti Capital. While investors have been generally underweight in bonds this year betting on the broad economic recovery following the COVID-19 pandemic, weekly positioning data by CFTC show that short positions in U.S. 2 and 5-year Treasury debt are below 2021 extremes, suggesting an extended sell-off can hurt hedge fund portfolios. While global central banks have started in the transitory inflation camp, an extended rise in global price pressures fuelled by supply chain shortages has prompted policymakers to change their language. The Bank of Canada, for example, surprised investors by signalling on Wednesday it could hike interest rates as soon as April 2022 and said inflation would stay above target through much of next year. “It is a VAR shock but again it’s more a matter of central banks responding to the stimulus they are being given as they all started in the transitory camp but inflation is proving more longer lasting so central banks are responding in a manner that’s true to their DNA and raising rates,” said Charles Diebel, head of fixed income at asset manager Mediolanum International Funds. Reporting by Saikat Chatterjee; additional reporting by Abhinav Ramnarayan and Sujata Rao; Editing by Frances Kerry and Bernadette Baum