Japan's Bond Market "Melt-Down" Spills Over to US Treasuries

A sudden and violent sell-off in the Japanese Government Bond (JGB) market is sending shockwaves through the global financial system, with US Treasury Secretary Scott Bessent confirming a direct “spillover effect” into American debt markets.

• Yield Spike: 30-year and 40-year JGB yields jumped over 25 basis points.
• US Contagion: US 10-year Treasury yield broke above 4.31%.
• Fiscal Catalyst: Proposed ¥5 trillion ($31.6 billion) stimulus package.

The “Truss Moment” Fear

The chaos originates from Tokyo, where 30-year and 40-year JGB yields spiked over 25 basis points in a single session—the most chaotic trading day since April 2025. Investors are revolting against Prime Minister Sanae Takaichis proposed ¥5 trillion ($31.6 billion) stimulus package, which includes tax cuts on food and beverages.

Market participants are calling this Japan‘s “Truss Moment,” referencing the 2022 UK gilt crisis caused by unfunded tax cuts. State Street Global Advisors' strategists warn that markets are aggressively pricing in the risk that Japan’s fiscal health is deteriorating.

Contagion Hits the US

The tremors from Tokyo were felt immediately in New York. The US 10-year Treasury yield broke above 4.31%, hitting levels not seen since August 2025. Secretary Bessent described the event as a “six standard deviation” move, indicating extreme market stress.

“We are seeing a direct liquidity shock transmission,” analysts at Bloomberg noted. “When the world‘s largest creditor nation [Japan] sees its own bond market freeze, the need for liquidity forces the selling of the world’s most liquid asset: US Treasuries.”

Policy Response

Japanese Finance Minister Satsuki Katayama attempted to talk down yields at Davos, ruling out immediate BOJ intervention but promising “responsible” fiscal management. However, Wall Street is increasingly betting that the Bank of Japan (BoJ) will be forced to conduct emergency bond-buying operations if the yield spike threatens global financial stability.