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Yields on Japan’s longest government bonds surged to their highest levels ever recorded on Tuesday, rattling markets and raising fresh alarms about the country’s worsening fiscal health. The spike came after an underwhelming debt auction showed major cracks in investor confidence. According to the Financial Times, the 30-year bond yield jumped to 3.14%, and the 40-year yield climbed to 3.61%, both increasing by 0.17 percentage points in a single session. The 20-year bond didn’t hold up either, spiking by 15 basis points to hit 2.56%. The auction’s tail–the difference between the highest and lowest accepted prices–was the widest seen since the 1980s. BoJ taper triggers panic as traders warn of global fallout The Bank of Japan has spent the past year slowly reducing its presence in the bond market, trying to pull away from its long-standing ultra-loose policy. That plan is now under fire. Traders said Tuesday’s chaos was directly tied to this tapering, which has been causing volatility across the entire yield curve. Mike Riddell, fund manager at Fidelity Investments, warned that the surge in yields could cause “contagion and further weakness in the long end of global bond markets” if Japanese investors start moving money back home. Japan holds massive amounts of overseas assets, and any sign that it’s pulling capital out could slam other markets hard. The Ministry of Finance is now being dragged into the mess. Just minutes after Tuesday’s auction, the central bank published feedback it had gathered from market participants about how tapering has gone. Several banks and brokers told the BoJ to reconsider, especially when it comes to long-dated bonds. The numbers are brutal. Société Générale estimates that the private sector will have to take on ¥60 trillion in new debt before the fiscal year wraps up in March 2026. That’s a massive…

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Filed under: News - @ May 20, 2025 6:22 pm