A massive sell-off in Japan’s $7.6 trillion bond market has sent shockwaves across the global financial landscape, with the U.S. bracing for potential repercussions.



<h2>Japan Bond Yields Surge On Fiscal Fears</h2>



The sell-off was driven by growing worries about Japan's long-term fiscal health, as rising inflation started to eat into the real returns of long-dated bonds with low fixed yields. The 40-year bond yield hit a record high of 4.213%, while shorter-dated yields also jumped, with the 10-year rising to 2.38%, its highest since 1999, and the 20-year climbing to 3.47%. 



Japan's government bond yields surged as investors grew concerned that proposed 8% food sales tax cuts could weaken the country's fiscal position. Also, Japanese Prime Minister Sanae Takaichi announced plans to dissolve parliament on Friday and hold a snap election on February 8, with the campaign expected to center on economic policy.



<h2>Rising Japan Yields Threaten US Bonds</h2>



Analysts have warned that the sell-off in Japanese bonds could lead to higher U.S. Treasury yields, as it may discourage investors from buying U.S. bonds. This is particularly concerning given Japan’s significant role in global capital flows, with Japanese investors being among the most aggressive buyers of overseas debt, particularly U.S. Treasuries. As of November 2025, Japanese investors owned roughly $1.2 trillion worth of U.S. Treasury securities. Ed Yardeni, president of Yardeni Research, told CNBC that Japanese investors have historically been especially aggressive buyers of overseas debt, particularly U.S. bonds, because interest rates were higher than in Japan. However, he said that as yields in Japan rise, those investors may be more inclined to keep their money at home and invest in domestic bonds instead, a shift that could place pressure on U.S. bond yields.



<h2>Trump Greenland Tensions Jolt Markets</h2>



Japanese bond sell-off also had domino effect across the globe. The 30-year U.S. Treasury yields rose to 4.93%, nearing the key 5% level, while the benchmark 10-year increased 6 basis points to about 4.29%. This event comes on the heels of President Donald Trump‘s renewed tariff threats over Greenland, which could push Europe to increase defense spending and issue more bonds.



European bond yields rose broadly, led by Germany and the U.K. The 10-year German Bund climbed to 2.88%, while the 30-year Bund yields rose to 3.51%. U.K. gilts saw a sharper selloff, with 30-year yields jumping to 5.25% and 10-year yields up 7 basis points.



Trump’s tariff threats also rattled global markets and led to a significant decline in U.S. equities. Over the past 5 days, NASDAQ and S&amp;P 500 declined 3.29% and 2.59%, respectively. Meanwhile, Dow Jones Industrial Average (DJIA) fell 2.27%.



Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.



Photo courtesy: Shutterstock

A significant sell-off in Japan's $7.6 trillion bond market has raised concerns about the country's fiscal health, with yields on long-dated bonds reaching record highs. This situation may lead to higher U.S. Treasury yields as Japanese investors, who typically buy U.S. bonds, might prefer domestic bonds instead. The sell-off has also impacted global markets, causing U.S. Treasury yields to rise and contributing to declines in major U.S. stock indices. The upcoming snap election in Japan adds to the uncertainty surrounding its economic policies.

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Japanese Bond Market Sees Historic Sell-Off: What It Means For US