Macroscope | Japan’s bond market sell-off is no blip
The so-called ‘quiet riot’ in the country’s debt market could be a foretaste of things to come
On Tuesday, the publication of a report showing that the US services sector last month expanded at its weakest pace in six years caused the yield on benchmark 10-year Treasury bonds to fall by a further seven basis points to 1.53 per cent, taking its decline since the end of June to more than 20 basis points.
German 10-year bond yields have also fallen since Britain’s shock decision on June 23 to vote to leave the European Union.
Indeed, according to data from JP Morgan, benchmark yields in every other advanced economy, as well as those in many emerging markets, have dropped sharply as the post-Brexit rally in the sovereign debt markets continues apace.
Yet one country – and an extremely important one at that – is suddenly bucking the global trend of falling bond yields.
In Japan, the word’s second-largest government debt market, yields have been rising over the past several weeks. Japan’s 10-year bond yield has shot up nearly 30 basis points since July 27 and is now almost in positive territory having been below zero since late February.
To be sure, some 65 per cent of Japanese government bonds (JGBs) are still negative-yielding. Yet the proportion has decreased from 80 per cent at the beginning of July, according to JP Morgan, which also notes that the average yield in Japan is now slightly positive, having hit a historic low of minus 0.12 per cent as recently as July 6.