Japanese government bonds (JGBs) have recently reached their highest yields since 1996, with the 10-year yield peaking at 2.901% and currently trading at 2.781%. This increase is attributed to the Bank of Japan's policy normalization and concerns regarding Prime Minister Sanae Takaichi's spending plans.
Masahiko Loo, a senior fixed income strategist at State Street Investment Management, noted that JGBs are transitioning from being 'uninvestable' to 'investable' as yields rise, suggesting that investors are finally being compensated for holding these bonds.
Charles Gave, co-founder of Gavekal, emphasized that Japanese bonds, particularly long-dated ones, are currently among the most attractive in the world, recommending a balanced portfolio of 50% equities and 50% bonds for those with no Japanese holdings.
However, some analysts, like Henning Potstada from DWS, argue that European bonds remain more appealing due to higher policy rates and better debt sustainability metrics. Lauren Hyslop from Mattioli Woods highlighted a selective return of foreign investors to the market, particularly in the 20- to 30-year segment, as yields surpassed 3.5%.
She warned that ultra-long positions carry risks, particularly if the 30-year yield exceeds 4.5%. The Japanese government is also encouraging pension funds, including the GPIF, to invest more in domestic assets, which could stabilize the bond market.
Despite the rising yields, uncertainties regarding fiscal pressures and the Bank of Japan's rate policies continue to deter some investors, compounded by geopolitical tensions affecting global yields