Japan's Bond Rout Spills Over Into Global Markets

The Japanese bond market has been experiencing a significant shift in recent times, with benchmark yields breaking through a three-decade-old barrier. This development is causing a reversal of the flow of funds from Japan to global bond markets, which had been a reliable source of capital for years.

Japanese investors have been selling overseas debt at an unprecedented rate, with official data showing a net outflow of 3 trillion yen ($18.7 billion) through August 22. This is the largest year-to-date outflow since bonds tanked in 2022.

Market participants and fund managers are attributing this shift to Japan's rising bond yields, which have more than tripled over the past two years. The 10-year JGB yield hit 3% on Tuesday for the first time since 1996.

As a result, Japanese investors are reassessing their opportunities at home and slowly pulling out of overseas holdings. This trend is significant because Japan is one of the largest owners of US Treasuries and has been a major buyer of sovereign debt worldwide.

A survey by J.P. Morgan Asset Management found that 82 corporate Japanese pension funds plan to boost domestic bond holdings, with net shares planning to do so at their highest level since the poll began in 2008.