- Japan’s 40-year government bond yield jumped above 4% (around 4.2%) after proposed fiscal stimulus and a temporary sales-tax suspension raised deficit and supply fears.
- The shock spilled into global rates as U.S. Treasury yields rose to roughly 4.29% (10-year) and 4.93% (30-year), reflecting a repricing of long-duration risk.
- Foreign appetite for U.S. Treasuries is showing fatigue with China selling for nine straight months and Japan turning a net seller, even as overall foreign holdings remain large.
- With term premiums at decade highs and U.S. net issuance set to climb as the Fed steps back, leveraged and liquidity-sensitive fixed-income positions look increasingly fragile.
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The recent surge in Japanese long‐term bond yields marks a significant shift in global interest rate dynamics. On January 20, 2026, Japan’s 40-year government bond yields breached 4% for the first time since their introduction in 2007, reaching approximately 4.2%, following announcements of bold fiscal moves including a large stimulus package and a temporarily suspended sales tax on food. These developments have prompted fears around Japan’s mounting debt—estimated near 200% of GDP—and the sustainability of future bond supply and demand.
This shock in Japan is not isolated. U.S. Treasury yields have responded acutely, with the 10-year U.S. yield rising to about 4.29% and the 30-year nearing 4.93%, the highest in over four months. The channel clearly involves global investors re-assessing duration risk, spreading from Tokyo to New York, particularly in long-dated maturities, and exposing frictions in funding markets.
A critical mounting pressure point is diminishing foreign demand in U.S. Treasuries. China has executed nine straight months of net Treasury sales as of November 2025; Japan also turned a seller in November for the first time in months. Officials and analysts emphasise that although headline “Sell America” narratives capture attention, foreign holdings remain historically large. The concern is not just current selling, but marginal loss of appetite—especially among central banks—just when U.S. deficits and issuance needs are accelerating.
Underlying all this is a rising term premium in U.S. Treasury yields—the additional return investors demand to hold longer maturities amid uncertainty. According to studies, term premiums have climbed to their highest levels in over a decade. Meanwhile, U.S. issuance is set to rise materially: net supply pressures are intensifying due to large fiscal deficits and the end of quantitative easing, especially as the Federal Reserve withdraws itself as a consumer of government debt.
The strategic implications are substantial. Asset managers and banks with leveraged exposure to long duration may face sharp mark-to-market losses if yields rise further. U.S. interest expense is increasingly sensitive to yield shifts, impacting fiscal sustainability. Countries with dollarized debt and those reliant on foreign demand for local bonds may be vulnerable. Key risks include: breakpoints in foreign buying, a policy shock (trade / currency), or a liquidity event similar to past episodes (1994, 2013, etc.).
Supporting Notes
- Japan’s 40-year bond yields exceeded 4% for the first time since their 2007 inception, jumping about 26 basis points in one session.
- Japan is planning a ¥135 billion fiscal stimulus and a two-year suspension of sales tax on food, stoking fears of expanding deficits and bond issuance.
- U.S. Treasury yields responded: the 10-year rose to ~4.29%, 30-year toward ~4.93%, both near recent highs.
- China has sold U.S. Treasuries for nine straight months; Japan was also a net seller in November 2025. Foreign holdings of U.S. debt remain record high (~$9.36 trillion) but show early signs of fatigue.
- Term premium on long-dated U.S. Treasuries has reportedly reached its highest level in over a decade, indicating investors are demanding more compensation for duration risk.
- U.S. Treasury net issuance is expected to increase substantially in the coming period—both to roll over maturing debt and to finance fiscal deficits—at a time when long‐dated demand is under pressure.