Navigating financial markets is akin to weaving through a constant stream of projectiles, each requiring acute awareness and quick reflexes. As bitcoin (BTC) and traditional risk assets regain their footing following last week’s turmoil triggered by Trump’s tariffs, unsettling fluctuations in Japanese bonds arise, complicating the landscape.
On Tuesday morning, the yield on 30-year Japanese government bonds surged to 2.88%, reaching its highest point since 2004 and marking a staggering increase of nearly 60 basis points within a week, as reported by data provider TradingView.
The gap in yields between the 30-year and five-year bonds, which reflects the premium that investors expect for holding long-term bonds, has now expanded to a level not seen in nearly two decades. Meanwhile, the 10-year yield has jumped approximately 30 basis points to 1.37% over the week, but it remains considerably below the recent peak of 1.59%.
Such movements in ultra-long bonds have raised legitimate concerns among investors, particularly since Japan has historically been a significant global creditor and the leading holder of U.S. Treasury securities. As of January, Japan possessed $1.079 trillion in Treasuries. For over 20 years, Japan has served as a stabilizing force for low bond yields, particularly in the developed world, encouraging a greater appetite for risk in financial markets.
Consequently, the ongoing rise in ultra-long JGBs may motivate Japanese funds to divest from international bond investments and yen-funded speculative trades, redirecting capital back domestically. This shift could heighten volatility in the U.S. Treasury markets and further bolster the yen, contributing to an increase in risk-averse sentiment.
“The Japanese hold the largest international investment portfolio globally, with significant capital allocated across various markets. Should that capital start returning to Japan, it would undoubtedly have negative repercussions,” stated Garry Evans, Chief Global Asset Allocation Strategist at BCA Research, in a Monday interview with CNBC.
Bitcoin may also face renewed pressure, reminiscent of the declines seen in August of last year during the initial phase of the yen carry trade unwinding.
BTC is viewed as a multi-faceted asset, appealing for its innovative technology as well as its potential as a safe haven and store of value. This narrative gained traction last week as escalating tariffs between the Trump administration and China prompted widespread risk aversion. However, BTC’s decline was less pronounced than that of the Nasdaq and the S&P 500.
This relative strength has been interpreted by some as an indication of the cryptocurrency maturing into a lower-beta asset, while others regard it as a hedge, conveniently overlooking the fact that BTC has generally declined since early February, likely factoring in a trade war that contributed to significant losses in the U.S. stock market last week.
So, remain vigilant!
