By Alun John, Yoruk Bahceli and Amanda Cooper LONDON, Jan 20 (Reuters) - A surge in Japan's borrowing costs to record highs rippled out across major bond markets on Tuesday, just as markets fretted
Japan's Bond Market Turmoil Triggers Global Financial Concerns
By Alun John, Yoruk Bahceli and Dhara Ranasinghe
Impact of Japan's Bond Market on Global Finance
LONDON/NEW YORK, Jan 20 (Reuters) - A jump in Japan's borrowing costs to all-time highs rippled through major bond markets on Tuesday, colliding with fresh anxiety over tensions related to Greenland and underscoring investors' sensitivity to rising fiscal pressures and heavy debt loads.
Japanese 10-year government bond yields surged almost 19 basis points (bps) in two days, the sharpest rise since 2022, while 30-year yields posted their biggest daily jump since 2003 <JP30YTN=JBTC> as investors braced for increased government spending.
Prime Minster Sanae Takaichi called a snap election on Monday and is running on a platform of stimulus.
"If there is a strong mandate following the election, that could open the door to more fiscal spending," said Seema Shah, chief global strategist at Principal Asset Management.
"It pulls a lot of global bond markets into a difficult story about debt and you can see that in the rise in borrowing costs."
Concerns Over Greenland and Tariff Threats
WORRIES OVER GREENLAND, THREAT OF MORE TARIFFS
Bond investors were also grappling with U.S. President Donald Trump's tariff threats against European allies over Greenland, which may raise expectations that Europe will have to ramp up defence spending further through even more bond issuance.
Talk of a 'Sell America' trade has also resurfaced, adding to selling pressure on Treasuries. The benchmark 10-year yield on Tuesday hit its highest since late August of 4.313%.
Danish pension fund AkademikerPension said on Tuesday it was planning to sell its U.S. Treasury holdings by the end of the month, worth some $100 million.
U.S. 30-year Treasury yields jumped around 8 basis points to 4.91% , as U.S. markets reopened after Monday's holiday.
Over the last two trading days, they've risen by 13 bps, their biggest two-day increase since last May, when China-U.S. trade tensions flared.
The spread between U.S. two‑year and 30‑year yields, a barometer of investor unease about long‑term government finances, was on track for its biggest one‑day widening since August, yet remained well below the 19‑bp jump recorded during last April's Liberation Day selloff.
"Japan fiscal pressures are concerning, but markets have become more sanguine about U.S. deficits," wrote Gennadiy Goldberg, head of U.S. rates strategy, at TD Securities in a research note.
"While Japanese worries could continue to pass through given global correlations, the U.S. Treasury is doing everything in their power to avoid over-issuing long-end debt by keeping issuance shorter-dated."
WHAT HAPPENED TO THE CALM?
The bonds selloff ends weeks of relative stability in big markets outside of Japan that have faced pressure over the past year from concern about high debt.
German 30-year bonds climbed as much as 6 bps to 3.53%, the highest in about two weeks, before coming down to 3.483%.
UK 30-year yields, which often rise or fall more than peers, were up around 6 bps at 5.22%, posting their largest daily increase since early January.
Market Reactions in Europe and the U.S.
In Europe, tensions over Greenland only highlighted spending pressures, analysts said.
"It again means that Europe needs to do more on defence," said Barclays head of euro rates strategy Rohan Khanna.
"Which the market is going to say: look, it eventually means more issuance and more debt supply and hence weaker long-end bonds."
He added that tariffs would hurt growth, which was supportive for shorter-dated bonds.
European bond markets were also sensitive to the JGB selloff because Japanese investors, big buyers of foreign bonds, might be tempted to move money into higher Japanese bond yields.
"The question is, where are those flows going to come from now? Are they going to come more from the U.S. or more from Europe? And given the current geopolitical landscape, that could amplify the spillover to the U.S. a bit more," said ING senior rates strategist Michiel Tukker.
"You could argue it's safer to stay in German Bunds than U.S. Treasuries."
(Reporting by Alun John, Amanda Cooper in London and Yoruk Bahceli; Additional reporting by Gertrude Chavez-Dreyfuss in New York; Writing by Dhara Ranasinghe; Editing by Bernadette Baum and Nick Zieminski)
