Japan’s ruling coalition suffered significant losses in its upper house, and that may not bode well for or JGBs. Both the yen and JGBs were under pressure leading up to this weekend’s vote.
Rates on , , and JGBs surged notably this past week, and the election results will provide the market with additional motivation to push yields even higher. The 10-year JGB briefly touched 1.6% last week, surpassing its previous peak from March.
You can add rising rates in Japan to the growing list of reasons why long-end in the US are likely to move higher. If Japanese yields rise further following the election results, either US Treasury rates will increase in tandem, or the spread between Treasuries and JGBs will narrow, bringing the yen carry trade back into the spotlight. Currently, the spread between the and the JGB is around 2.9%, just above the critical support level near 2.85%, which has played a key role over the past few…
