The top foreign holders of U.S. debt may soon dump Treasury bonds and bring their money back home, potentially spiking borrowing costs
Japanese investors, who currently hold about $1 trillion in U.S. Treasuries, may soon shift their investments back to domestic bonds as yields for Japanese government bonds rise. The Bank of Japan is expected to continue tightening rates, making JGBs more attractive compared to U.S. debt. This shift could lead to higher borrowing costs for the U.S. Treasury as demand for its bonds decreases.
- ▪Japanese government bonds are becoming more attractive due to rising yields.
- ▪The Bank of Japan is expected to raise rates for the fifth time since 2024.
- ▪Recent Treasury auctions have seen muted demand, leading to higher yields.
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For decades, Japanese government bonds offered minuscule returns, forcing investors there to look abroad, especially at U.S. financial markets.Recommended Video Japanese investors now collectively own about $1 trillion in Treasuries and are the largest foreign holders of U.S. debt. But that could change soon as the Bank of Japan has been hiking rates while hotter inflation has lifted JGB yields, which are now looking more attractive and emerging as an alternative to Treasury bonds. Yields for 10- and 30-year JGBs have soared to the highest levels since the 1990s, and the central bank is expected to tighten for the fifth time since 2024 as the Iran war sends oil prices higher.
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