The Bank of Japan is headquarters in Tokyo, Japan on September 27, 2021.
Toru Honey | Bloomberg | Getty pictures
Japan’s Bond Market is raising fears of capital flight from the US and the long -term yield is close to the record.
According to Reuters’ calculations, the demand for 40 years of government bonds has fallen to its weakest level since July last year, and the yield resumed their move last week.
Japan’s 40-year government bonds scored an all-time high of 3.689% on Thursday, and the last trading is 3.318%-so far this year has increased by about 70 basis points. 30 years of government debt yields have increased by more than 60 basis points this year, which is not far from the all -time high, but they are more than 50 basis points for a 20 -year debt.
Japanese looks like a time bomb. If confidence in the traditionally secure asset of the financial market is declining, the confidence in the global market can go with it.
Michael is gay
Portfolio Manager at Tidal Financial Group
Most Japanese government bond yields can cause Japanese investors to cause a wave of capital withdrawal by pulling money from the US, where Japanese investors can suddenly return their capital home from the US, said McVari’s analysts.
“If the Japanese government bond yields are rising, the move” triggers the global financial market Armagedon, “said Albert Edwards, the global technician of the Society General Corporate and Investment Banking.
He told CNBC that high yields and strong yen would affect domestic appetite for investing abroad. “Investing in the US is a currency benefit as to seek a good interest rate income.” Edwards separated US tech stocks, which have seen a large inflow of Japanese, which is especially targeted for a strong Yen.
Translating to increased debt costs is usually a problem for elevated yields, said David Roche, a quantum strategy technician. Japanese The world’s second largest borrower Increases the right. The country’s net external assets reached an all -time high of 533.05 trillion yen (7 3.7 trillion) in 2024.
“Tightening global liquor reduces the growth of the world to 1% and increases the prolonged rates by increasing the financial conditions and expanding the bear market in higher assets,” he said.
Sending this money to Japan is synonymous with the “US extraordinary end” and it is reflected elsewhere in Europe and China, “Roche said.
Carry trade jitters
The steeper of the Japanese yield curve is mostly the most important structural factor: Japanese life insurance companies have often met the main source of the demand for JGBs and 40 years of demand, the Portfolio Manager of the EastSpring Investments Portpholio Manager’s Portpholio Manager Rong Ren Goh.
Since the Bank of Japan’s scaling bond purchases and private players did not step in the seminal monetary policy change last year, demand-supplementary compatibility is likely to promote higher yields.
“If you yield a severely high JGB Japanese investor to return home, the unraveling of the carriage trade can lead to a loud noise in the US financial assets,” Edwards said. Strengthens high yield currency.
20 years of government bond yields in Japan in the last five years
Carry transactions include using those money to borrow in low-interest currency, such as Japanese Yen, and invest in higher yielding assets abroad.
Last August, Yen -based transactions began to unravel sharply After the Bank of Japan raised interest rates, the Japanese strengthened the currency and caused significant sales in the global markets.
“Japanese tick-time looks like a bomb. If one is traditionally declining in the traditionally secure assets of the financial market, confidence in the global market can go with it,” said Michael Gade, a leading author of the Tidal Financial Group and Portfolio Manager, said, “What happened in August”.
One of the primary goals of the current US administration is to reduce bond yields and weaken the dollar to address the global trade imbalance, and at the same time increasing the Japanese bond yield, which can harm the cheapest yen narrative, which is fuels that carry the Yen trade in the first place.
“That can cause a lot of traders to unwind those little yen positions and then you are looking at the potential repetition last August,” he said.
Alicia Garcia-Herero, chief economist at the Asia Pacific in Natics, has warned that the carri trade unwinding in August will be bad.
He said that Yen, who was returning to the Capital’s return home and cutting the greenback accreditation of the Greenback, was partially moving, not justifiable for Japan’s economy.
Yen has strengthened more than 8% since the beginning of the year.
Unpleaser
Other analysts say that the carriage trade impact should not be as intense as witnessed last year.
“Big Carry positions usually increase when there is a strong FX trend, or less FX volatility, and (when) there is a large short -term interest rate difference,” said Guy Steer, head of research in Amundi.
In the second quarter of 2024, the distance between the US 2 -year -old treasury and its Japanese counterpart were 450 basis points, and now the data provided by Amundi has been shown compared to 320 basis points.
He said the advantage of reducing yen is “less obvious”, he said, the depletion dollar means there are fewer yen positions than last year.
Although August is a “one hole in the same journey”, what will happen this time is a steady decline in the US dollar, said Ricardo Rebonato, a financial professor of Edhek Business School.
“Rather than an explosion, I will see a progressive erosion for a long time,” he told CNBC.
Japan’s large holdings of Japan are constructive and are anchored in a vast US-Japan strategic alliance, including economic, defense and geographical political cooperation, said Senior Fixed Income Technician of State Street Global Advisors Masahiko.
“Likewise, we see the risk of dividing or ‘dumping’ foreign bonds from Japanese investors,” Lu said.
Additionally, foreign tenants of US assets are the US. Concentrated in equities, the data provided by the State Street, rather than the treasury.
Large part of foreign US property holdings. 5 18.5 trillion is concentrated in equities, followed by US treasures 2 7.2 trillion, According to Apollo’s chief economist Tarston Slock.
“Although we cannot rule out the outflow of foreign capital from dangerous assets during the” intense US recession or severe “sales of the USA”, the outflow comes from equities before the outflow and is unlikely to start with treasures, “Lu said.
Clarification: This story has been updated to reflect the revised calculations of Reuters on the demand of the Japanese bond.
