(Bloomberg) — US Treasuries fell, caught up in a global selloff of longer-maturity bonds as concern Japan may boost debt sales rippled across markets.
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The rate on 10-year US notes increased by four basis points to 4.42% on Tuesday, poised for the longest upward streak since April. The selloff was most pronounced for debt due many years from now, with the US 30-year yield headed back toward 5% ahead of a government sale of longer-dated debt later this week. The yield on similar-maturity Japanese bonds approached a record, while the equivalent German rate hit its highest since March.
“The supply-concern driven steepening of Japanese government bonds appears to be responsible for the move higher in bund and US Treasury yields this morning,” said Lyn Graham-Taylor, a strategist at Rabobank.
Japan’s long bonds have proved vulnerable to sudden slides, and the moves have reverberated through US and European markets in the past. At the same time, US bonds are caught up in a mix of sometimes contradictory risks surrounding Donald Trump’s trade tariff drama, US fiscal policy and the outlook for the Federal Reserve.
Long bonds are suffering globally as many of the traditional buyers withdraw from the market even as supply expands. Such securities tend to attract a smaller pool of investors due to their greater interest-rate risk, with moves often exacerbated by lower liquidity.
British and Japanese bond markets have proved particularly vulnerable, prompting their respective debt offices to cut their sales of long bonds. Last week, gilts sold off rapidly on concern about the nation’s fiscal outlook.
This week, Japan is in focus.
Investors are nervous politicians may promise more fiscal spending in the run-up to July 20 elections in the upper house. The vote may hinge on whether voters prefer the ruling Liberal Democratic Party’s cash handouts to the opposition’s plans for lower taxes.
The nation’s super-long bonds extended their recent declines Tuesday, pushing the yield on 30-year securities toward a record high. The yield on the 30-year maturity is above 3% and within striking distance of the peak set in May.
Japanese Bonds Fall as Political Risks to Nation’s Markets Mount
Some major life insurers, traditional buyers of long-dated Japanese debt, are shunning such securities. Meiji Yasuda Life Insurance Co. said it plans to avoid actively investing in Japanese super-long-term government bonds for the next one to two years as interest rates may rise and supply pressures build.
