This article first appeared on GuruFocus.
Goldman Sachs (NYSE:GS) analysts warned that Japan’s latest political shift could send tremors through global bond markets. Following Sanae Takaichi’s surprise leadership win, the bank’s team led by Bill Zu noted that volatility in Japan’s long-dated government bonds could translate into upward pressure on yields across the US, UK, and Germany. Goldman estimated that every 10-basis-point swing in Japanese bonds might nudge those global yields higher by two to three basis points. Yields on Japan’s 40-year notes spiked as much as 17 basis points Monday, while US and UK 30-year bonds rose to 4.77% and 5.56%, respectively, as traders priced in the possibility of heavier fiscal spending under Takaichi’s pro-stimulus agenda.
The bank described Japan as a net exporter of bearish shocks to global long-end rates this year, suggesting Takaichi’s fiscal stance could steepen the yield curve further. Moves in Japan’s super-long yields have often foreshadowed similar trends abroad, particularly during periods of heightened deficit fears and persistent inflation. Governments and central banks have been responding in recent weeks to stabilize long-term borrowing costsJapan’s finance ministry, for instance, has floated the idea of trimming super-long bond issuance in upcoming auctions to prevent further selloffs.
Takaichi’s unexpected victorypaving the way for her to become Japan’s first female prime ministercaught investors off guard after many had positioned for Shinjiro Koizumi’s win. The market now sees fiscal expansion risk returning to the forefront, with traders watching closely whether Japan’s next 30-year bond auction draws steady demand. Goldman’s strategists said the sustainability of this renewed selloff will hinge on how Tokyo’s political and fiscal direction evolves in the coming weeks, as markets recalibrate to the possibility of a more aggressive spending cycle under the new leadership.
AloJapan.com