Yardeni Blames Yen Carry Trade Unwind for Global Bond Rout

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Market strategist Ed Yardeni is blaming the unwinding of the Japanese yen carry trade for a global bond market rout and the return of the bond vigilantes. Yardeni dismissed the idea that surging global bond yields are solely the result of inflation fears tied to Middle Eastern conflicts and rising oil prices, noting that U.S. breakeven inflation rates remain surprisingly subdued. Instead, he pointed to the Bank of Japan raising its policy rate and blowing up the highly lucrative yen carry trade, which for years let institutional investors borrow yen at rock-bottom rates and buy higher-yielding assets worldwide, particularly U.S. Treasuries and other government debt. That artificial demand, he said, allowed governments to run massive budget deficits without their borrowing costs spiking, and the vulnerability was laid bare in the summer of 2024 when the BOJ raised rates just as U.S. economic data fueled expectations of Federal Reserve rate cuts, sparking a frantic automated unwinding and a cross-asset global selloff in early August 2024. Earlier on Tuesday, the U.S. 30-year Treasury yield jumped to its highest level since 2002, underscoring how far borrowing costs have climbed at the far end of the curve.

Impact on assets 3

Others± Mixed · 2 stocks
％Japan Government Bond 10Y
JP-10Y
▼ NegativeMonetaryrelevance

BOJ rate hike that blew up the yen carry trade is the cited driver of the global bond rout, pushing JGB yields higher.

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