Asian stock markets fell, US and Japanese long-term bond yields surged, the yen came under pressure, and spot gold remained stable

A global bond sell-off triggered by a surge in corporate bond issuance and concerns over the fiscal situation in developed countries is intensifying, dragging down U.S. Treasuries and European bonds, and spreading to the Japanese market.

On Wednesday, September 3rd, the yield on Japan's 20-year government bonds climbed to its highest level since 1999, while the yield on 30-year government bonds hit a record high. Meanwhile, the yield on U.S. 30-year Treasuries soared on Tuesday, dragging down Wall Street stocks, and currently remains close to 5%. In Europe, German long-term bond futures have declined for the fifth consecutive trading day.

Higher yields have diminished the attractiveness of stocks, leading to widespread pressure on Asian markets. In the foreign exchange market, domestic political uncertainty in Japan has weakened the yen, while the dollar index has risen for the second consecutive day. Spot gold is up 0.1%.

• The Nikkei 225 index fell 1% to 41,886.93 points. The Tokyo Stock Exchange index also dropped 1%.
• The Euro Stoxx 50 index futures rose 0.3%. The S&P 500 index futures were nearly unchanged.
• The Taiwan Stock Exchange weighted index closed up 0.3% at 24,100.30 points.
• The euro was nearly unchanged at 1.1632 dollars.
• The yen depreciated 0.1% against the dollar to 148.58.
• The yield on 10-year U.S. Treasuries rose two basis points to 4.28%.
• The yield on Japan's 10-year government bonds remained flat at 1.625%.
• West Texas Intermediate crude oil fell 0.3% to $65.42 per barrel.
• Spot gold rose 0.1% to $3,537.08 per ounce.
• Bitcoin fell 0.3% to $111,050.86.

Surge in Debt Issuance and Concerns Over Fiscal Deficits

The record volume of corporate bond issuance is the direct trigger for this round of sell-off. According to statistics, on Tuesday, global borrowers issued at least $90 billion worth of investment-grade debt, making it one of the busiest weeks in the global credit market this year, with some markets nearing or breaking records. Reports indicate that the single-day bond issuance in Europe reached a record €49.6 billion.

Strategist Garfield Reynolds pointed out that the global economy seems to be responding well to the pressures brought by President Trump's tariff policies, but this has rekindled market concerns that emerged in 2024, namely worries about debt sustainability that could drive yields higher in the coming years:

"The sharp rise in yields may limit any rebound in the stock market, as the rising cost of borrowing is sufficient to damage corporate prospects."

Despite the recent sell-off, the Bloomberg Global Aggregate Index, which measures global bond performance, has still recorded a return of 6.7% this year, although on Tuesday, the index experienced its largest single-day decline since June 6th

Japan's Political Turmoil Intensifies Pressure on Bond Market

In Japan, local factors have further exacerbated the selling pressure in the bond market. In addition to following global trends, investors are also concerned about domestic political uncertainties. Previously, a key ally of Prime Minister Shigeru Ishiba indicated that he would resign from his position as Secretary-General of the Liberal Democratic Party if the Prime Minister approved. This development adds variables to the political landscape.

Moreover, the market is cautious about the upcoming 30-year government bond auction scheduled for this Thursday, which has also put selling pressure on ultra-long-term bonds. Rajeev De Mello, Global Macro Portfolio Manager at Gama Asset Management, stated:

“As a bond investor, I maintain a low duration allocation in Japan and avoid longer-term bonds globally. I am very cautious about this 30-year government bond auction, as both global and local factors are pushing yields higher.”

On Wednesday, the yield on Japan's 30-year government bonds briefly rose to 3.28%, marking the highest level on record. Meanwhile, the yield on 20-year government bonds also reached 2.69%, a new high since 1999.

Pressure on the U.S. Yield Curve Steepening Continues

In the United States, the shape of the Treasury yield curve is becoming a market focus. Analysts believe that the pressure for steepening (i.e., long-term yields rising faster than short-term yields) will persist. Kenneth Crompton, a strategist at National Australia Bank, stated:

“The pressure for yield curve steepening will remain persistent, with a series of factors continuously increasing the risk premium on the U.S. curve.”

The market is closely watching the U.S. employment data set to be released this Friday. Khoon Goh, Head of Asian Research at Australia & New Zealand Banking Group, analyzed:

“We may see more steepening pressure on the U.S. yield curve, especially if Friday's non-farm payroll data is weak, leading the market to price in more expectations for recent Fed rate cuts. The UK and Japan may also face similar pressures.”

Tariff Disputes and Global Market Dynamics

On the geopolitical and macroeconomic front, global traders are grappling with a series of complex factors, including key economic data, U.S. tariff policies, the independence of the Federal Reserve, and global fiscal outlooks. Bessent will begin interviews for the position of Federal Reserve Chair on Friday.

Meanwhile, U.S. President Trump stated that his administration would request the Supreme Court to make a swift ruling, hoping to overturn a previous federal court decision that deemed several of his tariffs illegal. Additionally, in Australia, the country's economic growth accelerated in the second quarter, reinforcing the central bank's rationale for keeping interest rates unchanged this month, leading to a decline in the country's bonds. These factors collectively suggest that the global stock market seems to be at a crossroads