Global Debt Crisis Spiraling Out of Control, Japan's Yield Curve Most Alarming

The global debt crisis is becoming increasingly acute, and markets are starting to reflect this.

A recent trend of dovish inflation prints has led to a scaling back of expectations for Federal Reserve hikes, but instead of pulling down long-term government bond yields, they rose globally and sharply in some cases.

This is a worrying sign because it means markets are no longer rewarding good news.

To gauge where fiscal distress is greatest, we can look at the shape of the yield curve.

In particular, looking at where the long end has steepened the most relative to history can give us an idea of where markets are pricing a growing risk premium due to rising odds of a debt crisis.

Japan stands out as having the most dysfunctional yield curve by a large margin, with artificially low yields heavily manipulated and shadow yields much higher.

This is why there's constant depreciation pressure on the Yen and why intervention can't stabilize the currency.

The underlying issue - too much debt - is the same.

The charts show long-term government bond yields for various countries, with Japan having the most unusual slope at the long end of its yield curve by historical standards.