The long end

Yields in Japan continue to go up. The 30 and 40 year JGBs are already above 4% and, looking at the chart below, it appears they are on a parabolic trend. The 10 year and the 20 year are following the same path. The UK curve (not on the chart) is above 5% from 9 year gilts up to 30 years, which is getting too close to 6% (5.86%). This is very important is several fronts: (1) with elevate levels of debt, the cost of servicing new debt at this levels will increase significantly. (2) we have also global high deficits (3) fiat currencies are linked to the well being of these yield curves. If Japan decides to intervene again to slow down the “yield discovery” process, the yen will tumble, which they will defend at 160, and they may need to sell (or simply not buy) US Treasuries. China sold US bonds in the 1Q2026, and it’s strategically reducing its exposure to U.S. government debt, not tactically. This is incredibly worrisome for markets. Investors don’t find these levels appealing, and therefore they keep rising. Central banks may be forced to act, perhaps increasing rates, not cutting, to see if that calms the market on its fears on inflation. But that can slowdown economic growth. If that doesn’t work, they may need to print money to buy bonds. But that will create more inflation and more currency debasement. Intervention, or the lack thereof, will mark the next wave for markets.

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