Yup, I’m aware of the concept of Yen carry trade and it’s unwinding.
The unwinding of Yen carry trade, explains to some extent the rising yields/falling bond prices in the US market, as traders are selling US bonds to square their borrowings, to prevent any losses due to Yen’s appreciation.
This coupled with the US credit rating downgrade and lack of demand for fresh issue, could keep the yields high.
I was wondering, why the yield on Japanese bonds were rising too, as money should be flowing into Japan due to repayments, if the carry trade was unwinding.
Came across this article, that explained the reason behind the rising yields of both Japan and the US.
The rising bond yields in Japan may also have a cascading impact on US bonds.
Since Japanese investors are one of the biggest holders of US bonds, amounting to $1.13 trillion, the rise in Japanese yields will be most felt in the US Treasury market, predicts Vishal Goenka, Co-founder of IndiaBonds…com.“The fear is that Japanese investors may now sell UST to buy JGBs at yields not seen since 2000. This may put further pressure on US yields for the long end of the curve and cause second-order effects on global yields going higher,” Goenka said.