Japan’s 10-year bond yield hits 30-year high amid Treasury selloff

Japan's benchmark 10-year government bond yield rose to 3.055% on Thursday, its highest level since August 1996, as a sharp selloff in U.S. Treasuries reverberated through global bond markets. The 30-year Japanese government bond yield climbed nearly 7 basis points to 4.134%, according to CNBC.cnbc

U.S. Treasury Selloff Drives the Move

The surge in Japanese yields tracked a jump in U.S. Treasury rates, with the 10-year Treasury yield rising to its highest since 2007. The selloff was fueled by stronger-than-expected U.S. PMI data — the September composite PMI jumped to 58.4 — rebounding oil prices, and weak demand at a $70 billion five-year Treasury auction that pushed five-year yields above 5%, according to UOB. The Federal Reserve raised its target range to 3.75%–4.00% on September 16, its first hike since July 2023, with Chair Kevin Warsh signaling that policy had not yet become restrictive.tradingnews+2

The Bank of Japan's own rate hike on September 18, lifting borrowing costs to 1.25% on a 7-2 vote — the highest since 1995 — added to upward pressure on Japanese yields. But the divided vote and Governor Kazuo Ueda's cautious messaging left markets skeptical of rapid further tightening, sending the yen lower rather than higher in the days following the decision.reuters+2

A 'Reverse Carry Trade' Emerges

The widening of Japanese yields is reshaping the investment landscape. Rong Ren Goh, fixed income portfolio manager at Eastspring Investments, told Reuters that the steep Japanese yield curve is creating a "reverse carry" opportunity for overseas investors. The 30-year JGB above 4%, when hedged into dollars or other developed-market currencies, offers yields 100 to 200 basis points higher than equivalent bonds in those currencies, Goh said.reuters

The gap between two-year and 30-year JGB yields exceeds 200 basis points, compared with an average of roughly 80 basis points across other core developed markets where curves are flattening. Eastspring, which manages $291 billion in assets, is gradually building exposure to the ultra-long end of Japan's curve through high-quality corporate and Samurai bonds.reuters

Rate Gap Keeps Yen Under Pressure

Despite the BOJ's tightening, the 275-basis-point policy gap with the Fed continues to weigh on the yen, with USD/JPY climbing past 158 on Wednesday during Japan's Silver Week holiday. Earlier this month, U.S. Treasury Secretary Scott Bessent signaled he expects action from Tokyo and the BOJ to support the falling currency. Japan and the United States conducted a rare coordinated intervention on July 31 after the yen weakened to 163.73, its lowest since 1986.cnbc+1

The BOJ's next meeting on October 29–30, one day after the Fed's October 28 decision, will be closely watched for signals on whether the Japanese central bank is prepared to accelerate its hiking cycle.tradingnews