Following a rare joint intervention by U.S. and Japanese foreign authorities in the market, U.S. long-term Treasury yields temporarily fell. However, forecasts suggest that structural upward pressures from growth, inflation, and fiscal policies will be difficult to suppress. Concerns have been raised that the global trend of rising long-term interest rates could also impact domestic government bond yields, leading to increased pressure on loan rates.
According to Investing.com, the yield on 10-year U.S. Treasuries closed at 4.684% on August 4, down 6.1 basis points (1 basis point = 0.01 percentage points). This marked a second consecutive day of decline, following a drop of 4.26 basis points on August 2. This trend is attributed to the joint intervention by the U.S. and Japan, which took place from July 30 to August 1, during which they sold dollars and bought yen.
While U.S. Treasury yields stabilized somewhat after the intervention, the upward trend has not been reversed. On August 4, the yield on 10-year Treasuries began to rise again. From the beginning of the year until the end of July, the yield had increased by 56.8 basis points. The yield on 30-year mortgages, which serve as a benchmark for U.S. home loans, also rose to 5.28% on July 31, the highest level in 19 years since July 2007.
The Wall Street Journal reported that the yen's value, which has fallen to its lowest level in 40 years, poses a risk of pushing U.S. Treasury yields higher. Additionally, it noted that the U.S. is likely to support the yen to fulfill Japan's $550 billion investment commitment to the U.S.
Japan is one of the largest holders of U.S. Treasuries. If the yen continues to depreciate excessively, Japanese authorities may sell U.S. Treasuries to defend the yen, which would lead to falling bond prices and rising yields. In fact, during Japan's interventions to defend the yen in April, May, and July 2024, its holdings of U.S. Treasuries decreased by a total of $59 billion. In April and May of this year, they also fell by $48.4 billion.
Long-term Treasury yields reflect market expectations regarding growth, inflation, and fiscal policy. The ongoing conflict in the Middle East has caused a surge in international oil prices, raising concerns about prolonged inflation in the U.S. Increased fiscal spending and the burden of issuing government bonds are also contributing factors to rising long-term yields. Although U.S. Treasury yields regained some stability after the U.S.-Japan intervention, they have begun to rise again for these reasons.
The domestic bond market is not immune to global long-term interest rate movements. Recently, domestic government bond yields have been rising, particularly for long-term bonds. The upward trend in long-term yields in major countries like the U.S. and Japan, along with expectations of sustained high domestic inflation, is increasing pressure on long-term interest rates.
If long-term interest rates rise in an environment where inflation remains unstable, borrowers may face increased cost burdens. Rising long-term bond yields can exert upward pressure on loan rates through market rates such as bank bonds. Given the already high levels of household debt, this could pose challenges for consumption and investment.
With forecasts suggesting that U.S. long-term Treasury yields will be difficult to lower, domestic government bond yields are also likely to face upward pressure. Choi Je-min, a researcher at Hyundai Motor Securities, stated, "The U.S. Treasury and the central bank may attempt to suppress coupon bond increases, but this may only provide short-term relief from rapid rate hikes. It will be challenging for long-term rates to normalize quickly."
Kim Sung-soo, a researcher at Hanwha Investment & Securities, noted, "Long-term bond yields cannot ignore the impact of robust growth, expansionary fiscal policy, and the global trend of rising long-term interest rates. The direction of long-term rates will be determined by the contents of the 2027 budget proposal."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.