Rising Japanese Bond Yields Could Shake Global Carry Trade, Crypto

Japan’s 10-year bond yields surged to 1.86%, the highest since 2008, threatening to unwind the yen carry trade that funneled trillions into risk assets.

Japanese government bond yields have jumped to their highest level in decades, prompting some analysts to speculate that it could be behind the recent crypto market sell-off on Sunday.

Japan’s 10-year government bond yield hit 1.86% on Monday, its highest level since April 2008, according to MarketWatch.

Yields in the 10-year bonds have almost doubled in Japan over the past 12 months. Japan’s two-year bond yields also hit 1% for the first time since 2008.

While 1.86% is not a substantial yield from government bonds, it is significant because it marks a shift, as Japan has had a very low interest rate environment for decades, with negative or close to zero rates prevailing for the most part, and a very stable bond market.

This has encouraged institutional investors around the world to borrow low-interest Japanese yen to buy higher-yielding, riskier assets, in a strategy known as the “Yen Carry Trade.”

“Trillions borrowed in yen, deployed into US Treasurys, European bonds, emerging market debt, risk assets everywhere,” explained economics author Shanaka Anslem Perera, who said, “That anchor is now breaking.”

Japanese institutions hold approximately $1.1 trillion in US Treasury securities, and is the largest foreign position, explained Perera.

Related: Bitcoin crashes 5% in ‘Sunday slam’ as liquidations surge

The timing couldn’t be worse for the United States, as it comes when the Federal Reserve terminates quantitative tightening, and when the US Treasury requires record issuance to finance $1.8 trillion deficits, he stated.

Source: CoinTelegraph