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Japanese bonds market lights fear of capital flight from the US and trading that has been carrying the wind since it has long been dated to keep near record highs.
According to Reuters estimates, the yield resumed its step higher, as the demand for 40-year state bonds decreased to the weakest level, according to Reuters estimates near record highs last week.
40-year-old Japanese government bonds on Thursday reached a maximum of 3.689% and the last time traded by 3.318% by 70 basic points above this year. The yield of 30-year state debt this year increased by more than 60 basic points at 2.914%, also near highs over the whole time, while they increased by 50 basic points for 20 years.
Japan looks like a time bomb. If the confidence in one of the traditionally safe financial market assets to circle, confidence in the global market can go with that.
Michael Heide
Manager portfolio in Tidal Financial Group
Government bond yields in Japan can cause capital repatriation with Japanese investors who pull funds from the US. We may have a “trigger” if Japanese investors suddenly transfer their capital from the US home, Macquarie analysts note in the note.
If Japanese government yields continue to grow, this step can “cause the global financial market of Armageddon,” said Albert Edwards, a global strategist at Societe Generale Corporate & Investment Banking.
Higher yields and stronger will affect the internal appetite for investment abroad, he said CNBC. “Investments in the United States were the same currency income as they sought for excellent profitability of the interest rate.” Edward has highlighted American technological actions that have seen great Japanese tributaries as particularly sensitive to a stronger one.
Increased spell yields for world markets as a whole when they are translated to increase borrowing costs, said David Rosh, a quantum strategy. Japan – this The second largest lender in the world Increases rates even higher. Pure external assets in the country reached the maximum in 2024 in 533.05 trillion (3.7 trillion).
“Delaying global liquidity will reduce the global growth by 1%, and the increase in long -term indicators will strengthen the financial conditions and expand the bear market in most assets,” he said.
This repatriation of funds in Japan is the synonym of the “end of the US” and is displayed elsewhere in Europe and China, “Rosh added.
Carry the shopping shivers
Standing the Yapan yield curve is largely related to the key structural factor: Japanese insurance companies-excluding demand for 30- and 40-year-old JGB-to greatly complied with their purchase requirements due to regulation, said the Eastpring Investments portfolio in the team.
Last year, the Japanese Bank scale bond purchases in the seminar change of monetary policy, and private players are not activated, demand mismatch is likely to force higher yields.
“When JGB forcing JGB to return home sharply higher yields, the unwinding trade can cause loud sucking sound in the US financial assets,” Edwards said. Higher yields tend to strengthen the currency.
20-year-old government bond Japan over the past five years
Take a borrowing in currency with low percentage as Japanese and the use of these funds for investment at higher yields abroad.
In August last year, Ian trades began to spin sharply After the Bank of Japan raised interest rates, strengthening the Japanese currency and causing a significant sale in the world markets.
“Japan looks like a time bomb. If confidence in one of the traditionally safe financial market assets will circle, confidence in the global market can go with this,” said Michael Gaid, author of the leading gap and portfolio manager at Tidal Financial Group, adding that people suggested in August. “
Gade noted that one of the main goals of the US administration is to reduce bond yields and weaken the dollar to solve the world trading imbalance, and if it happens at the same time when Japanese bonds grow, it harms the cheap stories that feeds first.
“This can lead to many traders that unwind these short positions, and then you look at the potential repetition in August last year,” he said.
The trade, which will soon come out worse than in August, warned Alissia Garci-Herrero, the chief economist of the Asia-Pacific in Natixis.
Strengthening it, which is partially conditioned by the capital returns home and investors who reduce the Green Appeal, which is impossible for the Japanese economy, she added.
Since the beginning of the year, it has strengthened more than 8%.
The gradual cleavage
Other analysts note that the impact on travel may not be as serious as it witnessed last year.
“Big positions are usually accumulated when there is a strong FX trend, or very low FX volatility, and (if) there is a large short -term interest rate differential,” said Guy Stir, head of developed market research in Amundi.
In the second quarter of 2024, the gap between the 2-year revenue of the US Treasury and its Japanese counterpart was 450 basic points compared to 320 basic points that have now shown Amundi.
The advantage in the short he is “less obvious”, he said, adding that the dollar means that there are shorter positions than last year.
While Augustus was “Crater at one time” that will happen this time, it will most likely become a constant decline (in urban trade) from erosion in trust in the US dollar, said Ricardo rebonate, Professor of Finance in the Edhec Business School.
“Instead of not strengthening, I see progressive erosion over a long period of time,” he said CNBC.
The large possessions of Japan in the US Treasury are structural, enshrined in a broader strategic US-Japan alliance that covers economic, protection and geopolitical cooperation, said Musachiko LO, the senior fixed income strategist in State Street Global.
“So we see a slight risk of deprivation or” dismissal “of foreign bonds by Japanese investors,” Lou said.
In addition, foreign estates of US assets are concentrated in US actions rather than the Treasury shown by State Street.
A larger piece of foreign American assets is concentrated in stocks of almost 18.5 trillion. Dollars and then the US treasurers of 7.2 trillion. Dollars, According to the chief economist Apollo Torsten Spell.
“While we cannot rule out a certain degree of foreign capital from risky assets in the event of a strong recession in the United States or a strong story” Sell America “, we believe that this is probably the outflow will come from stocks, first with corporate bonds, and it is unlikely to begin with the Treasury,” Loo added.
Report: This story has been updated to display revised Reuters calculations on Japanese bonds.
