Japan’s Bond Market Could Be the Next Catalyst for Global Yields

Stocks finished the day lower as rates continued to rise. The 10-year Treasury yield reached 5.3% on the day, while the 30-year reached 5.65%. At this point, we are just about 20 bps away from the next resistance area on the 30-year at 5.85%. There isn’t much in the way of resistance between here and there to slow the move higher.

The only major item left on the calendar this week is the jobs report on Friday.

Really, the only conclusion that makes sense when it comes to rising bond yields is that the market is repricing rates globally. Japan, which has long served as the low-rate anchor for the rest of the world, has lifted, and global rates are rising along with it.

The spread between the U.S. 30-year Treasury yield and the 30-year JGB is now just 1.5%, which is actually very low. Historically, that spread has tended to bottom around 1% and peak somewhere between 2.5% and 3%.

What is concerning is where the 30-year JGB sits today. It has been consolidating just below the 4.2% level and has formed what appears to be an ascending triangle. A breakout above 4.2% could have serious reverberations across the global bond market.

In the meantime, there isn’t much else to say. The S&P 500 had another really boring day, and it has pretty much been that way since June 2—just a sideways market. Maybe tomorrow things will be more exciting.

-Mike

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Glossary by ChatGPT

30-Year JGB — A Japanese government bond with a 30-year maturity whose yield reflects long-term borrowing costs in Japan.

Ascending Triangle — A bullish technical chart pattern characterized by rising lows converging beneath a relatively flat resistance level.

Basis Point (bps) — A unit equal to 0.01 percentage point, commonly used to measure changes in interest rates and bond yields.

JGB — Japanese Government Bond, a debt security issued by the government of Japan.

Rate Repricing — The market-driven adjustment of asset prices and yields to reflect changing expectations for interest rates.

Resistance — A technical price or yield level where selling pressure or other market forces may impede further upward movement.

Yield Spread — The difference between the yields of two debt instruments, often used to compare relative interest rates, risk, or market conditions.

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