While it might appear that the most significant updates about the global economy are currently coming from a small town in the Swiss Alps, Tokyo may disagree. This week Japan’s bond market suffered a major selloff, with yields hitting an all-time high. Ten-year yields spiked to 2.2%, while 30-year yields hit 3.66%. While the onset of the selloff can’t be pinpointed, it is likely a combination of geopolitical tensions and simmering concerns about Prime Minister Sanae Takaichi’s ¥21.3 trillion ($134 billion) economic plan to bolster Japan’s debt-heavy economy.This, warned Citadel CEO Ken Griffin, should be a cautionary tale to the U.S., where yields neared the danger benchmark of 5% this week.
“I think there’s an explicit warning that if your fiscal house is not in order, the bond vigilantes can come out and retract their price,” Griffin said at a Bloomberg event in Davos.
The 5% threshold is a concern for investors because it’s the point at which holding U.S. debt is comparable to the returns on stocks. This is a worry because bonds are seen as a stable, low-risk component of a balanced portfolio; if yields are at a level comparable to stocks, then risk may also be too high for investors who want stability.
