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A sudden selloff in long-dated Japanese government bonds rattled global markets this week, creating a ripple effect that briefly spooked U.S. Treasuries and exposed growing strains in sovereign debt.

A Six-Standard-Deviation Shock in Tokyo

The turmoil began on Wednesday, January 21, when yields on 30-year and 40-year Japanese government bonds (JGBs) surged by more than 25 basis points in a single session. Market participants described the dramatic move as a six-standard-deviation event, highlighting its extreme rarity and severity.

This volatility didn't stay contained. It quickly spilled across borders, pushing the U.S. 10-year Treasury yield to its highest level since August as investors were forced to reassess risk in government bond markets worldwide.

Why Japan's Bond Market Suddenly Spiked

The pressure on JGBs stems from a mix of domestic factors that are challenging investor confidence after years of ultra-loose monetary policy. Key drivers include:

• Rising Interest Rates: Japan is facing the prospect of higher domestic interest rates.

• Political Uncertainty: Election-related risks are contributing to market anxiety.

• Central Bank Policy: There are growing expectations that the Bank of Japan may have to deploy unconventional bond-buying measures.

These persistent issues suggest that simple verbal interventions from policymakers may not be enough to calm the market and prevent further volatility.

From Liquidity Shock to a Test of Credibility

According to an analyst from Bitfinex, this episode was more than just a market tremor. It functioned as a liquidity shock that effectively put the credibility of global financial policy to a stress test.

For cryptocurrency markets, the event carries both immediate and long-term implications. In the short term, widespread stress across bonds and other risk assets tends to dampen enthusiasm for speculative investments, potentially limiting price gains for digital assets.

Bitcoin's Long-Term Narrative Gains Ground

While the immediate outlook may be challenging, repeated disruptions in traditional safe-haven assets like government bonds could bolster the long-term investment case for Bitcoin.

As concerns mount over political influence on monetary policy and the overall stability of sovereign debt, investors may increasingly turn to non-sovereign alternatives like Bitcoin. If interest rate instability and currency pressures continue to plague the global financial system, crypto assets could see their strategic role in diversified portfolios re-evaluated, especially as confidence in conventional "risk-free" assets is repeatedly called into question.

President Donald Trump announced he expects to sign new cryptocurrency market structure legislation "very soon," positioning the initiative as a key move to prevent China from dominating the digital asset sector.

Speaking at the World Economic Forum, Trump confirmed that Congress is developing a new bill for crypto and Bitcoin, building on the GENIUS Act passed last year.

Securing US Leadership in Digital Assets

Trump argued that the upcoming legislation is crucial for national strategy, not just ideology. He stated the bill would "unlock new pathways for Americans to reach financial freedom" while securing U.S. leadership in the crypto space.

According to Trump, allowing China to capture emerging technology markets would make it incredibly difficult for the United States to regain its competitive footing. He also noted a shift in domestic politics, claiming that voter pushback against the Biden administration's previous stance on crypto has made the issue politically popular.

Linking Crypto Policy to Economic Growth

Trump tied the push for crypto regulation to what he described as a strong economic performance since his return to office. He presented several key economic indicators to support this claim:

• Inflation: Core inflation over the last three months was 1.6%.

• GDP Growth: The economy is projected to grow at a rate of 5.4% in the fourth quarter.

• Stock Market: U.S. markets have hit 52 all-time highs since the election, adding approximately $9 trillion to savings and retirement accounts.

• Social Programs: Over 1.2 million people have transitioned off food assistance programs.

• Investment: The administration has secured commitments for $18 trillion in new investment, with the final amount potentially reaching $20 trillion.

He contrasted these figures with the less than $1 trillion in investment commitments made during the previous four years, declaring the U.S. economy "the hottest country anywhere in the world."

Foreign Policy and NATO Alliances

In his remarks, Trump also addressed foreign policy, emphasizing that he does not plan to use military force to achieve U.S. objectives. He asserted that American strength serves as its own deterrent, negating the need for escalating conflicts.

He raised questions about the NATO alliance, expressing doubt that member nations would support the U.S. in a crisis despite America's defense commitments. Citing recent tensions over Greenland that caused minor market volatility, Trump described his approach as transactional, insisting that U.S. security guarantees must be met with reciprocal support from allies. He argued that the United States has shouldered an unfair share of the costs without certainty of equal backing in return.

US Economy as a Global Engine

Trump concluded by framing America's economic expansion as a benefit to the entire world, calling the United States the "economic engine of the planet." He noted that current growth projections have already surpassed earlier estimates from the International Monetary Fund and suggested his trade and tariff policies could accelerate that growth even further.

Speaking at the Davos Economic Forum on Wednesday, U.S. President Donald Trump said he is open to negotiations for the United States to acquire Greenland but appeared to rule out using military force.

"I don't want to use force," Trump said during a speech in Switzerland. "I won't use force."

His remarks follow a day of unease in financial markets, where U.S. stocks fell on Tuesday over concerns that his threats to annex Greenland and impose tariffs on European nations opposing the plan could trigger a trade war with the EU.

The Push for "Immediate Negotiations"

Despite backing away from a military threat, Trump made it clear he intends to take over the Danish territory. He called for "immediate negotiations" and issued a thinly veiled warning.

"You can say 'yes' and we will be very appreciative, or you can say 'no' and we will remember," he stated.

Trump dismissed alternative arrangements, insisting that a lease would be insufficient. He argued that full ownership is necessary for defense purposes.

"All we're asking for is to get Greenland, including right title and ownership, because you need the ownership to defend it," Trump said. "You can't defend it on a lease. No. 1, legally, it's not defensible that way, totally. And, No. 2, psychologically, who the hell wants to defend a license agreement or a lease?"

Justifications and Strategic Rationale

Trump defended the controversial proposal by citing previous U.S. expansion in North America and historical European colonialism, stating, "There's nothing wrong with it." He also argued that the U.S. took control of Greenland during World War II to protect it from Nazi Germany and that it was "stupid" to have returned it to Denmark.

While his administration has previously cited Greenland's rare earths and "critical minerals" as a reason for the bid, Trump seemed to downplay their importance. "To get to this rare earth, you got to go through hundreds of feet of ice," he said. "That's not the reason we need it."

During his speech, Trump referred to Greenland as a "piece of ice" and repeatedly misidentified it as "Iceland."

Remarks on Global Allies and Rivals

The address also included familiar themes from the president, who praised his own accomplishments while criticizing allies. He targeted European energy policies for not allowing oil exploration in the North Sea and for building "windmills all over Europe." He also praised China for not having "a single windmill," an inaccurate claim given China's massive investment in wind and solar energy.

Trump also had sharp words for Canada's prime minister, Mark Carney, who had suggested on Tuesday that economies should diversify away from a reliance on the U.S.

"Canada should be grateful to us," Trump said. "Canada lives because of the United States. Remember that, Mark, the next time you make your statements."

Despite framing the Greenland plan as a counter to Moscow and Beijing, Trump expressed respect for Russian President Vladimir Putin and Chinese President Xi Jinping. He also commented on Ukraine, stating that U.S. efforts to end the war are progressing and that he plans to meet with Ukrainian President Volodymyr Zelenskiy on Thursday.

"And I'm dealing with President Putin, and he wants to make a deal," Trump said, adding, "I can say that we're reasonably close." According to the Kremlin, Trump's envoy Steve Witkoff is scheduled to meet with Putin in Moscow on Thursday.

Conflicting Outlooks on Venezuela

Trump projected an optimistic future for Venezuela, claiming a U.S. military operation to remove leader Nicolas Maduro would transform the country into a booming oil producer. He asserted that "every major oil company is coming in with us."

However, this view was not universally shared at Davos. While Chevron, Spain's Repsol, and Italy's Eni indicated they could expand their existing Venezuelan operations, ExxonMobil CEO Darren Woods described the country's business and legal environment as "uninvestible."

The White House also noted that Trump could meet with Venezuelan interim president Delcy Rodriguez on the sidelines of the forum.

FUNDAMENTAL OVERVIEW

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UPCOMING CATALYSTS

Source: investinglive

Long-dated German bond yields climbed for a fourth consecutive session on Wednesday as investors grappled with a turbulent global environment. The market is currently processing the aftershocks of a major selloff in Japanese debt while keeping a close eye on an unpredictable geopolitical landscape.

Germany’s 30-year bond yield rose nearly 3 basis points to 3.51%, marking a 10 basis point increase for the week. If this trend holds, it would represent the largest weekly jump since early December. The benchmark 10-year German yield also edged higher, rising almost 2 basis points to 2.88%.

The JGB Shockwave Hits European Markets

A primary catalyst for the market movement was a sharp selloff in Japanese government bonds (JGBs) on Tuesday, which recorded the largest single-day yield spike since 2003. The turbulence quickly spread to international debt markets, pushing eurozone yields higher.

While Japanese markets stabilized on Wednesday, with bond yields there falling sharply, the initial shock continued to influence European sentiment. "I think the market is digesting a little bit what happened in Japan," said Anne Beaudu, a global fixed income portfolio manager at Amundi. Tim Graf, head of macro strategy for EMEA at State Street Markets, noted that the JGB market is "starting to find some equilibrium."

Rising long-term bond yields often signal increased uncertainty or expectations of future government borrowing, as investors demand a higher risk premium to hold the debt. Following significant selloffs, some investors also see an opportunity to purchase bonds they believe will recover in value.

Geopolitical Tensions Add to Market Pressure

Alongside market-specific events, geopolitics has become a dominant theme for investors. "Since the beginning of the year, it's very much about geopolitics," Beaudu explained, referencing the external policies of U.S. President Donald Trump and their implications for Europe.

Headlines from the World Economic Forum in Davos, Switzerland, have fueled this uncertainty. President Trump's wide-ranging speech, which included remarks ruling out the use of force to control Greenland, largely failed to calm eurozone bond markets.

The standoff over Greenland has had tangible consequences. In response to Trump's demands and tariff threats, the European Parliament decided on Wednesday to suspend its work on the European Union's trade deal with the United States. Graf of State Street Markets identified this standoff as a factor that "added to market pressure" triggered by the JGB moves.

Bond Issuance and Market Stability

Despite the volatility in secondary markets, the primary market for new eurozone government bonds has remained robust. A busy period of issuance from several countries has been met with solid demand.

"There has been a lot of issuance since the beginning of the year. It's continuing. It has been very well absorbed by the market and I don't see any sign of stress on this today," Beaudu commented.

This resilience was evident in Germany's latest auction of 30-year bonds on Wednesday. The sale secured an average yield of 3.49%, slightly higher than the 3.45% from an earlier sale this month. However, demand increased, with the bid-to-cover ratio climbing to 2.4 from a previous 2.1.

In other parts of the eurozone, shorter-dated yields were stable, with Germany's two-year yield holding flat at 2.08%. France's 10-year yield also remained steady at 3.53% after concerns over the country's domestic budget eased earlier in the week.

Speaking in Davos, Switzerland, U.S. President Donald Trump announced on Wednesday that a peace deal to end the war in Ukraine could be imminent. He stated that both Ukrainian President Volodymyr Zelenskiy and Russian President Vladimir Putin are now positioned to reach an agreement.

U.S. President Donald Trump and Ukrainian President Volodymyr Zelenskiy are central to renewed discussions on a peace agreement with Russia.

Trump asserted that he is actively dealing with Putin, who he said is keen to make a deal. He added his belief that Zelenskiy is also prepared to finalize an agreement to conclude the conflict, which is approaching its fourth year.

An Agreement in Sight

During a discussion following his formal remarks to global leaders and business executives, Trump expressed confidence that a deal was now "reasonably close," despite previous setbacks where both leaders had backed away from potential agreements.

"I think I can say that we're reasonably close," Trump said, emphasizing the urgency of ending the conflict. "We have to get it stopped."

Trump's comments come as Ukraine prepares to mark the fourth anniversary of Russia's full-scale invasion on February 24.

Planned Meeting with Zelenskiy

President Trump also stated he would meet with President Zelenskiy in Switzerland. He initially mentioned the meeting was scheduled for Wednesday, a detail that was disputed by a source familiar with Zelenskiy's agenda. Trump later clarified that the meeting was planned for Thursday.

This new optimism follows a period of frustration for the U.S. President, who said he had expected to negotiate an end to the war sooner but cited "abnormal hatred" between the two leaders as a major obstacle. Just last week, Trump had told Reuters that he viewed Zelenskiy as the primary impediment to reaching a peace accord.

On Wednesday, however, Trump’s tone shifted, suggesting Washington was making progress in brokering a ceasefire.

"I believe they're at a point now where they can come together and get a deal done," he concluded. "And if they don't, they're stupid."