Investors may dump $1 trillion US Treasuries as BOJ hikes
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- Japanese investors hold about $1 trillion in U.S. Treasury bonds, making them the largest foreign holder of U.S. debt.
- Bank of Japan has lifted JGB yields to their highest since the 1990s and is expected to raise the benchmark rate to 1% next month.
- Mark Dowding of BlueBay told the Financial Times that new money will be allocated to domestic Japanese assets rather than U.S. Treasuries or corporate bonds.
- Matt Smith of Ruffer said rising long‑end domestic yields and a policy push to bring money home will likely strengthen the yen, prompting Japanese investors to favor domestic bonds.
- U.S. Treasury sold $25 billion of 30‑year bonds at a 5% yield—the first time since 2007—after recent auctions showed muted demand.
- Federal Reserve has cut its benchmark rate by 175 basis points since mid‑2024, yet the 10‑year Treasury yield has only fallen about 35 basis points while the 30‑year yield reached 5%.
- Mark Malek of Siebert Financial warned that the disconnect between Fed cuts and long‑term yields is unprecedented, indicating the bond market is sending a strong signal.
Why it matters: U.S. Treasury faces higher yields and borrowing costs as Japanese investors shift $1 trillion of Treasury holdings back home, while Japanese investors benefit from rising JGB yields and a potentially stronger yen, altering global debt market dynamics and increasing pressure on U.S. fiscal financing.
