Global bond markets are going through a period of unprecedented turbulence. The yield on Japanese 30-year bonds has reached an all-time high of 3.15%, while the USA is struggling to sell its Treasuries. This dual crisis is driving investors en masse to bitcoin, which set a new record at $111,800.
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Japan and the USA face the worst crisis in decades
Last Tuesday, the world’s bond markets tumbled into turmoil. Catastrophic auctions triggered widespread asset collapse revealing an unprecedented crisis of confidence. Japan’s bond market, the world’s third largest, suffered its worst crisis in decades.
The auction of 20-year government bonds recorded its lowest demand since 1987, while the number of buyers relative to securities on offer fell to levels not seen since 2012. Chis investor flight propelled 30-year yields to an all-time high of 3.18%.
This turnaround overturns four decades of stability. Despite a debt-to-GDP ratio of 260%, the highest among developed economies, JGBs (Japanese Government Bonds) had previously been one of the safest havens for international capital. This abrupt transformation reveals growing concerns about Japan’s fiscal sustainability, in the face of an ageing population and persistent economic stagnation.
The United States has not escaped this contagion. The yield on Treasury bonds jumped to 5.1%, a level not seen in years, reflecting growing investor mistrust. This situation led to a synchronized fall in all US stock market indices.
The unwinding of the carry trade amplifies systemic risks
The collapse of a massive financial strategy amplifies this crisis. For years, investors exploited Japan’s near-zero interest rates through the “carry trade”, a technique of borrowing at low rates in Japan to invest elsewhere at higher yields. This simple but lucrative technique has drained several trillion dollars into this gigantic global speculative machine.
This strategy took on gigantic proportions. For years, several trillion dollars have circulated around the globe. But today, with the sudden rise in Japanese interest rates, this mechanism is being brutally reversed. Investors had to close their positions in a hurry, repatriating their capital en masse to the United States, Japan.
The rush caused a chain reaction of chaos. The yen soared, world currencies panicked, and equity markets plunged. Hedge funds, which had invested $900 billion in US bonds with borrowed money, found themselves trapped. Forced to sell in a hurry to repay their debts, they fueled a downward spiral in prices. The more they sell, the more prices fall, creating a vicious circle reminiscent of the March 2020 crisis.
Beyond finance, geopolitical issues are exploding. Visit Japan holds $1.1 trillion in US debt, a world record. Its Prime Minister Shigeru Ishiba confesses that Japan’s fiscal situation is “worse than Greece’s between 2010 and 2012”. This double vulnerability threatens the economic balance between the two allies.
Bitcoin benefits from the T-bill crisis?
While bonds collapse, cryptocurrencies triumph. This paradoxical situation perfectly illustrates the current recomposition of financial markets. On Thursday, bitcoin broke through a new all-time high of $111,800, accompanied by an explosion in trading volumes, which jumped 82% in 24 hours.
This performance can be explained by a massive flight of capital. Faced with the collapse of confidence in Japanese and American sovereign bonds, investors are desperately seeking alternatives. Bitcoin, dubbed “digital gold”, is attracting this capital in search of safe havens uncorrelated with government monetary policies.
The institutional environment is amplifying this craze. The ETF Bitcoin cash ETFs are multiplying inflows, JPMorgan now offers cryptocurrency options, and the administration Trump seems to favor clearer regulation of the sector. This gradual legitimization is reassuring the major asset managers, who have long been reticent.
This shift of capital from bonds to cryptos reveals a profound transformation of the global financial architecture. The simultaneous questioning of Japanese and American solvency is opening up a historic breach that digital currencies are rushing to fill.
As a journalist at Coinpri, I’ve been captivated by the world of bitcoin and blockchain since 2020. The decentralized aspect of Bitcoin particularly piqued my interest. Since then, I’ve been working constantly to spread my knowledge, hoping one day to see a world where everyone fully enjoys their financial freedom.
