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Precious metals are not the only thing that is melting up this week. Global bonds yields are also surging higher but the standout is the Japan government bond (JGB) market once more. Yields in Japan are soaring today after prime minister Takaichi confirmed a snap election for 8 February, with the lower house of parliament to be dissolved on Friday this week.40-year JGB yields hit a fresh record high and touched 4% for the first time and 30-year JGB yields are not far away amid a whopping 40 bps plus surge this week alone:Meanwhile, 10-year yields nudged up to a high of 2.38% earlier – its highest since 1999. All of this comes after Takaichi pledged more tax cuts that could worsen the country’s already worrying fiscal position.It’s pretty much an exacerbation of the Takaichi trade that has been running since October to November last year.A mix of debt, deficits, and geopolitics have not done bond markets much good as of late. And Japan’s own political situation is not helping the domestic scene, not least with the government also locking horns with the BOJ.Yardeni Research is one to warn about how the rout in Japan’s bond market might have reverberations elsewhere. The firm argues that:”Japanese investors in the past have been particularly aggressive in buying debt in other markets, in particular the US, where interest rates have been higher than in Japan. Now that their yields are going up, you’re likely to see that Japanese bond investors may be more likely to stay home and invest in their own bonds rather than in the US, so that could put some upward pressure on US bond yields.”That in turn will bring us back to the argument in Treasuries, where investors are also having to consider looser fiscal policy and rising debt issuance. It’s akin to a vicious cycle that just keeps feeding off itself. Danger.
This article was written by Justin Low at investinglive.com.
💡 DMK Insight
Japan’s snap election announcement is shaking up bond markets, and here’s why you should care: The surge in Japanese government bond (JGB) yields signals a shift in investor sentiment, likely driven by expectations of policy changes post-election. With yields rising, traders need to watch for potential volatility in related markets, especially if the election results lead to a more hawkish stance from the Bank of Japan. This could ripple through global bond markets, impacting everything from U.S. Treasuries to corporate bonds. If you’re holding positions in bonds or interest rate-sensitive assets, now’s the time to reassess your strategies. Look for key resistance levels in JGB yields; a breakout could indicate a broader trend shift. On the flip side, while rising yields often signal a stronger economy, they can also lead to increased borrowing costs, which could dampen growth. Keep an eye on how this plays out in the equity markets, particularly in sectors sensitive to interest rates. Watch for the election date on February 8 as a potential catalyst for market movements.
📮 Takeaway
Monitor JGB yields closely ahead of the February 8 election; a breakout could signal broader market shifts affecting global bonds and equities.
