Goldman Sees Japan Bond ‘Shocks’ Spilling Over to Treasuries

Bond

Summary:

Goldman Sachs warns Japan’s bond volatility, spurred by new LDP leader Sanae Takaichi’s pro-stimulus stance, could pressure global long-end yields, spilling into U.S., UK, and German markets amid rising fiscal concerns.

Volatility in Japan’s longer-dated government bonds is on the rise following Sanae Takaichi’s election win, and the moves are likely to spill over to markets as far away as the US and UK, according to Goldman Sachs Group Inc.

The ascent of Takaichi risks pushing up long-end Japanese yields, strategists including Bill Zu wrote in a note. For every 10 basis point “idiosyncratic JGB shock,” investors can expect around two to three basis points of upward pressure on US, German and UK yields, the strategists wrote.

Yields on Japan’s 40-year debt soared as much as 17 basis points on Monday as traders wagered that Takaichi’s pro-stimulus stance may prompt authorities to sell more government bonds. It added to pressure on long-dated debt around the world, with yields on UK and US 30-year bonds up as much as six basis points to 5.56% and 4.77% respectively.

“Japan has been a net exporter of bearish shocks onto global long-end rates this year,” Goldman’s strategists wrote in an Oct. 5 note. “We expect the news of Ms. Takaichi’s election as LDP President to result in higher long-end JGB yields and a steeper curve.”

Moves in Japanese government bonds have foreshadowed that of their global counterparts this year, with a spike in super-long yields in the Asian nation amplifying ructions fueled by fears of widening fiscal deficits. Goldman’s warning sharpens the focus on longer-dated notes, which have come under scrutiny as governments ramp up borrowings and inflation proves stickier than expected.

Some debt offices and central banks have announced measures to support long-dated bonds in recent weeks, with Japan’s finance ministry proposing to trim issuance of super-long term government bonds in upcoming auctions.

Whether the renewed long-end selloff has staying power depends on how the political landscape evolves, Goldman’s strategists wrote in the note.

Takaichi, who is poised to become Japan’s first female prime minister, was a surprise winner for many investors positioning for political scion Shinjiro Koizumi to secure the leadership. Bond investors had been wary of fiscal spending even before Takaichi’s win, with opposition parties calling for tax cuts.

A 30-year bond sale scheduled for Tuesday may shed further light on investors’ appetite for the nation’s bonds.

What Bloomberg Strategists Say...

“The 40-year move shows investor concern that Takaichi’s pro-stimulus stance will revive concerns about debt issuance.”

Garfield Reynolds, Markets Live strategist. Click here for the full analysis

“The long-end of the JGB curve has been decoupled from its usual cyclical drivers for some time, and increased uncertainty will likely keep long-end risk premia higher for now,” Goldman’s strategists wrote.

Source: Bloomberg

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Risk Disclosure

The risk of loss in trading financial instruments such as stocks, FX, commodities, futures, bonds, ETFs and crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

No decision to invest should be made without thoroughly conducting due diligence by yourself or consulting with your financial advisors. Our web content might not suit you since we don't know your financial conditions and investment needs. Our financial information might have latency or contain inaccuracy, so you should be fully responsible for any of your trading and investment decisions. The company will not be responsible for your capital loss.

Without getting permission from the website, you are not allowed to copy the website's graphics, texts, or trademarks. Intellectual property rights in the content or data incorporated into this website belong to its providers and exchange merchants.

Recent Searches

Top Searches

Markets

Analysis

User

24/7

Economic Calendar

Education

Data

Goldman Sees Japan Bond ‘Shocks’ Spilling Over to Treasuries

Source: Bloomberg

Risk Disclosure