Affected by the U.S. Treasury selloff, Japanese government bond yields rose sharply

Japanese government bonds fell on Wednesday, following the overnight selloff in U.S. Treasuries. Earlier, U.S. inflation data came in above expectations, intensifying market bets that the Federal Reserve may need to raise interest rates more aggressively. The yield on 5-year Japanese government bonds rose 9.5 basis points to 2.195%; the 10-year yield rose 10.5 basis points to 2.795%. The 2-year yield, which is more sensitive to monetary policy, rose 8.5 basis points to 1.86%. Before that, U.S. Treasuries suffered a sharp selloff, with the 2-year U.S. Treasury yield soaring 18 basis points to 4.74%, marking the largest single-day increase since April 2025.

Previously, Federal Reserve officials warned that more aggressive rate hikes may be needed to curb inflation. This selloff marked a reversal in the trend of Japanese government bonds. In the previous few trading sessions, driven by the sharp decline in U.S. stocks, demand for safe-haven assets increased, and traders therefore lowered their expectations for a Bank of Japan rate hike, pushing Japanese government bond yields down accordingly. Shinichiro Kadota, head of Japan FX and rates strategy at Barclays, said the earlier decline in Japanese bond yields was somewhat of an overshoot, and expects yields still have room to recover further to correct the previous drop. (Jinshi)