US Treasury Secretary Scott Bessent Addresses Risks to Debt Market Amid Japan's Rate Hike
The US bond market faces renewed pressure as long-term yields approach multi-decade highs, increasing mortgage and corporate borrowing costs. Treasury Secretary Scott Bessent is working to prevent a major foreign buyer—Japan—from exacerbating the situation by reducing its holdings of US Treasurys. Japan's recent rise in domestic interest rates has made local bonds more attractive for investors who previously sought returns abroad. Japan, which holds about $1.1 trillion in US government debt, is now seeing 10-year bond yields near 3%, the highest since 1996. This shift could reduce demand from Japanese institutions like pensions and insurers that have historically supported global bond markets by investing overseas. However, so far, most of Japan's sales have been limited to short-term Treasury bills. To mitigate potential market instability, Bessent has urged expansion of the Fed’s FIMA repo facility, which allows foreign central banks to temporarily exchange Treasurys for cash without flooding the market with bonds. This tool was recently used during a joint US-Japan intervention on July 31.
Topics: foreign debt holders Japan's bond rates Treasury yields US Treasury policy