tiprankstipranks
Trending News
More News >

Bond Market Is a ‘Ticking Time Bomb’ as Yields Spike in the U.S. and Japan

Bond Market Is a ‘Ticking Time Bomb’ as Yields Spike in the U.S. and Japan

Fear is rising among bond traders as yields continue to spike in both the U.S. and Japan.

Confident Investing Starts Here:

There are growing worries on Wall Street of a capital flight from the U.S., and that the “Japan carry trade” might begin unwinding as long-dated bond yields near all-time highs. Bond yields rise when investors sell the fixed-income assets. The current spike in the yields of U.S. Treasuries is being taken as a growing loss of confidence in America.

As yields rise on 30-year and 10-year U.S. Treasuries, demand for 40-year U.S. government bonds has fallen to its weakest level since July 2024. At the same time, Japan’s 40-year government bond yield has hit an all-time high of 3.689%, up 70-basis points on the year. Yields on other Japanese government debt are also rising.

Capital Shift

Higher Japanese government bond yields could lead to a massive capital shift from the U.S. to Japan, leading to an unwinding of the carry trade, which involves borrowing in a low-interest-rate currency such as the Japanese yen and using those funds to invest in higher-yielding assets abroad, typically U.S. Treasuries.

Last summer, yen-based trades began to unwind after the Bank of Japan raised interest rates, strengthening the Japanese currency and triggering a selloff in global markets. In worrisome reports, analysts and bond traders are starting to use phrases such as “financial market Armageddon” to describe the situation developing in the bond market.

Michael Gayed, a portfolio manager at Tidal Financial Group, is quoted as saying that Japan looks like a “ticking time bomb” waiting to explode in the bond market.

Massive Downturn?

Analysts and traders say that pulling funds from the U.S. and moving them to Japan as they chase higher yields, or returns, would trigger a massive downturn in global financial markets. Japan operates the world’s second-largest bond market, currently worth $3.7 trillion.

Some say a big shift in capital from the U.S. to Japan’s bond market would lead to an end of U.S. exceptionalism and could send stock prices sharply lower. The current turmoil in the bond market and risk that the Japan carry trade unwinds is being exacerbated by a strengthening yen currency and investors cutting their exposure to the U.S. dollar.

Is the Vanguard Total Bond Market ETF a Buy?

Let’s look at the three-month performance of the Vanguard Total Bond Market (BND) exchange-traded fund (ETF). As one can see in the chart below, the BND ETF has declined 2% over the last 12 weeks.

Disclaimer & Disclosure

Looking for a trading platform? Check out TipRanks' Best Online Brokers guide, and find the ideal broker for your trades.

Report an Issue