Global Government Bond Yields Surging and Declining Liquidity

Government bond yields are rising sharply worldwide, with Japan experiencing notable curve steepening and anomalous movements in ASW spreads and inflation expectations. Analysts warn that declining market liquidity could amplify these yield increases beyond fundamental levels.

Key Takeaways

• 1.Government bond yields are surging globally, with Japan's yield curve steepening more significantly than other major economies.
• 2.The Japanese ASW (Asset Swap) spread is narrowing despite news of potential fiscal expansion, a move that contradicts typical market behavior.
• 3.Japan's 10-year break-even inflation (BEI) rate has surged higher without significant yen weakening or crude oil price spikes.

Table of Contents

• Key points
• Government bond yields surging worldwide: Unprecedented JGB market movements
• ASW spread narrowing despite news suggesting fiscal expansion
• Despite only slight yen weakening, modest oil price rise, BEI rose sharply
• Need to monitor declining liquidity going forward; risk of amplifying rising yields not in line with fundamentals
• Analyst Certification
• Disclosures
• Disclaimers

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