Japan’s 10-year government bond yield soared above 1.59% on Tuesday, reaching its highest level since 2008, as markets price in potential fiscal stimulus ahead of the July 20 Upper House election. The surge comes despite the Ministry of Finance reducing super-long bond issuances, signaling strong upward pressure on shorter-term rates.
What Happened: Lawrence McDonald, founder of the Bear Traps Report, highlighted the yield surge and warned that Japan’s role as the “planet Earth’s bond yield anchor for decades” is ending.
“When central bankers distort the true cost of capital over longer and longer periods of time, there’s a price to pay for this charade; it’s not free,” McDonald wrote last week on X.
The yield spike reflects growing expectations of expanded fiscal spending, including potential consumption tax cuts, as Prime Minister Shigeru Ishiba‘s Liberal Democratic Party faces political pressure. LDP support plunged to 24% in an NHK poll, its lowest since returning to power in 2012, reported Japan Today.
Why It Matters: Global bond markets are experiencing synchronized stress. UK long bond yields broke through 2022 “panic” highs, while French 30-year yields hit 4.21%, the highest since 2011. McDonald highlighted this pattern, asking “Japan, UK, and now France – what do bonds know?”
The bond selloff coincides with broader market concerns about commercial real estate debt. McDonald noted that much of the $5 trillion in U.S. commercial and multifamily mortgage debt sold between 2013-2021 at 2-3% coupons is now trading at 40-60 cents on the dollar.
Meanwhile, U.S. 10-year Treasury yields held above 4.43% as investors await inflation data that could influence Federal Reserve policy. President Donald Trump‘s 25% potential tariffs on Japan, imposed after Tokyo’s unsuccessful attempts to negotiate, add additional pressure on Japanese assets.
The Nikkei 225 traded at 39,453.90, down 0.015%, while the yen weakened to 0.0068 against the dollar.
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