Global bond markets were rattled this week by a sudden jump in Japanese yields, sending U.S. long-term interest rates higher and threatening to push borrowing costs—especially mortgage rates—even further out of reach for millions of Americans.
The 30-year U.S. Treasury yield surged past 4.76% Tuesday, climbing for the third straight session, while the popular iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) fell 1.6% Monday, its sharpest daily drop since late May.
What Did Japan Just Do?
One comment from the Bank of Japan was enough to jolt global bond markets.
BoJ Governor Kazuo Ueda highlighted rising wages, fading tariff risks under the Trump administration, and persistent yen weakness as reasons to begin normalizing policy, warning traders that a rate hike is coming.
Interest rate markets are now assigning a 73% probability to a Bank of Japan rate hike at the Dec. 19 meeting, rising to over 90% by January.
Japan's 2-year government bond yield topped 1% for the first time since 2008, while the 10-year spiked to 1.86%—also a post-2008 high—as traders priced in a possible rate hike in December.
Why It Matters To Investors
John Butler, a veteran financial historian and author of the Amphora Report, said the world should be watching Japanese bond yields—and the yen—very closely.
"Investors are right to be concerned," he said. "If combined with a stronger yen, this could trigger a ‘risk-off’ correction in markets around the globe."
Butler believes the current environment mirrors the precarious conditions of August 2024, when a stronger yen forced a violent unwind of popular carry trades—where traders borrow in low-yield currencies like the yen to invest in higher-yield assets abroad.
"As yen interest rates rise, the cost of funding risky asset positions in dollars or other currencies rises with it," Butler said. That's a problem for anyone exposed to leveraged trades, especially in sectors like Big Tech and private credit.
If a stronger yen returns, the scenario could escalate. "A double-whammy hits: higher rates and a stronger yen. Traders caught off guard become forced sellers," he said.
"If banks tighten margin requirements, then it becomes a triple-whammy."
Mortgage Market May Feel The Pain
While equity investors watch the yen and global bond yields, everyday Americans might start feeling the pain in a more direct way.
U.S. Treasury yields are the reference point for all kinds of lending—from credit cards and auto loans to mortgages.
The average 30-year fixed mortgage rate currently stands at 6.23%, having remained above the 6% mark since September 2022.
As long-term Treasury yields climb, mortgage rates may rise in tandem, tightening the squeeze on first-time homebuyers and those looking to refinance their loans.
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