US Treasury yields hit four-month highs amid Japanese bond rout

Tuesday 20 January 2026 - 15:20

By: Dakir Madiha

US Treasury yields hit four-month highs amid Japanese bond rout

US Treasury yields surged to their highest levels in over four months on Tuesday, triggered by a dramatic sell-off in Japan's bond market that rippled through global financial markets. This spike unfolded against rising Japanese budget concerns and fresh US-Europe trade tensions.

The benchmark 10-year Treasury yield climbed to 4.265 percent, while the 30-year yield jumped more than 9 basis points above 4.93 percent, marking intraday peaks not seen since early September, according to market data from CNBC and Dow Jones.

The turmoil originated in Japan, where long-term government bond yields hit records after Prime Minister Sanae Takaichi called snap elections for February 8. Her pledge to suspend the 8 percent consumption tax on food for two years fueled fears over fiscal discipline in the world's most indebted nation. Japan's 40-year bond yield crossed 4 percent for the first time since 2007, and the 10-year yield reached a 27-year high of 2.37 percent, with buyers notably absent, evoking the 2022 UK gilt crisis.

Analysts noted a shift in perception, with ultra-long Japanese bonds no longer viewed as safe havens but repriced for global fiscal risks. State Street's Masahiko Loo described the sell-off as reviving the "Takaichi trade": a stronger Nikkei, weaker bonds, and a depreciating yen.

Trade frictions intensified the pressure, as President Donald Trump threatened tariffs on eight European allies over Greenland, starting at 10 percent on February 1 and rising to 25 percent by June 1 unless the US secures the Danish territory. This reignited the "Sell America" strategy from Trump's April "Liberation Day" tariffs, sending Nasdaq and S&P 500 futures down 1 percent early, weakening the dollar, and driving gold above $4,700 per ounce a historic milestone while silver hit records.

Yields now carry a risk premium, with investors demanding higher returns amid political uncertainty. MUFG economist Henry Cook warned that even if tensions ease, doubts about deals with Trump will persist, keeping tariff risks elevated. Citi downgraded European stocks, citing threats to 2026 earnings forecasts. Focus shifts to Davos, where Trump meets global business leaders Wednesday, as markets await clarity on trade policy and a potential Supreme Court ruling on presidential tariff powers.