Investors should be more worried about Japan
Japan’s financial institutions are known to be big buyers of U.S. Treasurys, and have helped to bolster the global bond market in the past through what’s known as the yen-funded carry trade.
This trade involves borrowing in yen to buy a higher-yielding currency like the dollar, which is then invested in bonds of that currency.
But that era appears to be ending, putting both Treasurys and U.S. stocks at risk, according to one strategist.
If sharply higher yields on Japanese government bonds entice the country’s investors to return home, “the unwinding of the carry trade could cause a loud sucking sound in U.S. financial assets,” said strategist Albert Edwards of the French-based bank Société Générale.
“Most commentators attribute the rise in U.S. 30y yield to 5% to U.S. domestic fiscal developments without putting it into a wider global context. Both the U.S. Treasury and equity markets are vulnerable, having been inflated by Japanese flows of funds (as has the dollar),” Edwards wrote in a note on Thursday.
Vivien Lou Chen MarketWatch 22 May 2025
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