High returns raises fears of carrying trade

The headquarters of the Bank of Japan in Tokyo, Japan, on September 27, 2021.

Toro Hanai Bloomberg Gety pictures

The bond market in Japan ignites fears of a capital trip from the United States and the trafficking of pregnancy, where the long -running revenues are hovering near record levels.

The return resumed their move to the top on Wednesday, as the demand for 40 -year government bonds decreased to its weakest levels since July last year, according to Reuters accounts, homing near its highest levels in the record last week.

The revenue of government bonds of 40 years in Japan was the highest level ever of 3.689 % on Thursday, and the last time was traded by 3.318 %-approximately 70 higher basis points so far this year. The return on government debt for 30 years has increased by more than 60 basis points this year by 2.914 %, and it is not very far from its highest levels ever, while it has increased for 20 years over more than 50 basis points.

Japan looks like a time bomb. If confidence in one of the safe assets in the financial market has led to confidence in the global market may pass it.

Michael Jays

Director of the Governor at Tidal Finance Group

Macquarie analysts said in a note that the revenues of Japanese government bonds can provoke a wave of capital reports with the investment of Japanese investors who withdraw money from the United States, where there can be a “operating point” where investors in Japan are transporting their capital from the United States to the homeland.

“If the yield of Japanese government bonds continues to climb, then” global “Armageddon” can provoke “global” armeddon “,” said Albert Edwards, a global strategic expert at Societe Genereale Corporate & Investment Banking.

“Investing in the United States was the gains of currency as much as it was seeking superior interest returns,” CNBC told CNBC. Edwards has identified American technology shares, which have seen significant Japanese flows, as especially lowerly stronger.

David Roche, a strategic expert in the quantum strategy, said that high returns are having trouble for global markets in general, as they translate into an increase in borrowing costs. Japan being it The second largest creditor in the world It raises the risks higher. The net external assets in the country reached the highest level in 2024 at 533.05 trillion yen ($ 3.7 trillion).

“The tightening of global liquidity will reduce the growth of the world to 1 % and by raising long -term rates, it will stress the financial conditions and expand the bear market in most of the assets,” he said.

Roche added that returning money to Japan is a synonym for the “end of the American exceptional” and it is reflected anywhere else in Europe and China.

Download trade tensions

The slope of slope in the return curve in Japan is largely due to the main structural factor: Japanese life insurance companies-a major source of demand for JGBS for 30 and 40 years-have largely fulfilled the purchase requirements that depend on the list.

With the Bank of Japan expanding the scope of bond purchases in an essential monetary policy attack last year, private players are not escalating, the demand provider is likely to be met with higher returns.

Edwards said: “If JGB’s revenues are sharply higher, Japanese investors tempt to return to their homes, the convenience of the pregnancy trade may have a high sound sucking in US financial assets,” Edwards said. The higher returns tend to strengthen the currency.

The revenues of government bonds in Japan for 20 years in the past five years

Pregnancy deals include borrowing in a low -interest currency such as the Japanese yen and the use of these funds to invest in assets with a higher return abroad.

Last August, The deals that take the yen to relax sharply After the Bank of Japan raised interest rates, strengthening the Japanese currency and launching a large sale in the global markets.

“Japan looks a time bomb. If confidence in one of the safe assets in the financial market has led to walking in the global market,” said Michael Gais, author of the Tidal Finance Group.

Gayd said that one of the basic goals of the current US administration is to reduce bond returns and weaken the dollar to address global trade imbalances, and if this happens at the same time, the returns of Japanese bonds rise, then it is damaged by the cheap yen that carries the yen carrying trade in the first place.

“This may lead to many traders who recover from short yen sites, and then look at a possible repetition last August,” he said.

Alicia Garcia Herro, the chief economist in Asia and the Pacific Ocean in Natsis, warned Alicia Garcia Herro, the chief economist in Asia and the Pacific Ocean in Natsis.

She added that the enhancement of the yen is partially driven by the capital that belongs to the homeland and investors who are beheading the green, cannot be sustained by the Japanese economy.

The yen has strengthened more than 8 % since the beginning of the year.

Graduate relaxation

Other analysts say that the effect of trade may not be severe as it witnessed last year.

“There are usually the big pregnancy situations when there is a strong FX direction, or very low FX fluctuations, and (when) there is a major differentiation in the short -term interest rate,” said Jay Steer, head of advanced market research at Amundi.

In the second quarter of 2024, the gap between the return of the Treasury Department in the United States for two years and its Japanese counterpart was 450 basis points, compared to a 320 basis point now, showed the data provided by Amundi.

He said that the advantage in shortening the yen was “less clear”, adding that the dollar, which is missing, means the presence of fewer short positions than last year.

Ricardo Ripunato, a professor of finance at Edhik College of Business, said that while August was a “hole in one”, what will happen this time will likely be a steady decrease (in Carry Trade Rove) due to corrosion in the US dollar.

“Instead of collapse, I see gradually erosion for a long period of time,” CNBC told CNBC.

Massaiko Lu, a major strategy of fixed income in the Steet Street, said that the large holdings in Japan from American treasury bonds are structural, and are based on the wider American and Japan strategic alliance that includes economic, defensive and geoteetic cooperation.

Lu said: “As such, we see little risks from getting rid of foreign bonds by Japanese investors.”

In addition, foreign assets of American assets are concentrated in American stocks, instead of the cabinet, showed the data provided by State Street.

A larger part of the US foreign assets possesses in stocks is about $ 18.5 trillion, followed by US Treasury bonds at $ 7.2 trillion, According to the chief economist in Apollo Torstein Silok.

“Although we cannot exclude some degree of external flows of foreign capital assets of risky assets in the case of severe American stagnation or intense“ Sell Americana ”narration, we believe that the external flow will come from shares first with corporate bonds after that, and it is unlikely to start with treasury bonds.