This week, volatility drove much of the action within the Japanese government bond market. Fast swings echoed throughout the $8.4 trillion bond market, which spurred investor concerns and hope regarding the nation‘s economic recovery.
Volatility notably hit the nation’s benchmark 10-year debt, spurring a record high over the past month. The yield previously declined to as much as 0.195 pct back in January.
Monday’s market activity, however, urged a big jump in yields. The benchmark yield rose as high as 0.46 percent, but retreated slightly on Tuesday as it dialed down to 0.4 pct.
Despite that, Japan‘s bond market isn’t the market with the lowest bond yields anymore. Germany recently became the nation with the lowest sovereign yields as its 10-year government bond yield dropped well below Japan.
Japan still achieved a record, though—a record in debts. The nation now holds the largest debt in the developed world, posting a 1 quadrillion yen (about $10.46 trillion) deficit in debt. The figure is more than double of the nation’s current GDP.
The recent volatility in the Japanese bond market is driving much of the concerns plaguing market analysts and investors as of this time. Some worry that the distinct fluctuations in Japanese bond yields could ‘trigger a sell off that could eventually spur higher yields.’
Despite higher yields amid lower prices, a sell off could make it difficult for the Japanese government to fulfill interest payments, due to their debts.
Others see the rise in yields as a good thing. They think that the Bank of Japan ‘has successfully rallied Japanese investors into trying riskier investments instead of relying on safer government bonds.’ According to them, the effects of this could potentially inspire economic recovery.
A recent strong auction of 20-year Japanese government debts more or less confirmed that sentiment. The good performance reassured market observers, who noted that ‘domestic investors interested in [Japanese government bonds] are highly likely to buy when the price is favorable.’