Government debt becomes less appealing when fiscal deficits spiral out of control.
The world’s least risky asset class is making noise out of Tokyo.
When Japanese Prime Minister Shigeru Ishiba compared his country’s fiscal situation to Greece’s, markets responded with one of the weakest sovereign bond auctions in recent history.
That should concern U.S. investors.
The Bank of Japan has spent decades suppressing bond yields, yet last week’s failed 20-year auction for Japanese government bonds (JGBs) suggests the easy-money era there is ending.
- Japan’s 30-year bond yields rose above 3 percent to the highest since 1999
- Japan’s 40-year bond yields hit 3.6 percent, a record high
Falling demand for government debt stems from worsening fears over fiscal stability. That bodes particularly ill in a nation like Japan, where domestic investors and the central bank own over 80% of the bonds.