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.
