In yet another hit to Japanese assets, the yield on the Japanese government’s 20-year bond fell into negative territory for the first time in history earlier in the week. With the fallout of the Brexit, international investors are fleeing to the US and Japan to protect their assets against high-risk markets. The yen has made extraordinary gains over the past few months, floating around 100 against the dollar on Wednesday. Japan’s currency has gained 20 percent in the past year and around 8 percent over the past 3-months. This influx of foreign investment has extended into bonds, sending yields down even further.
The 20-year note offered by the Japanese government fell to minus 0.005 percent on Wednesday, its lowest point on record. Additionally, the 10-year bond, which fell into negative territory in February, fell to minus 0.275 percent. Now all bonds, except the 30-year and 40-year, are in negative territory and are expected to remain negative for some time. Currently, the 30-year note floats around 0.04 percent but fell as low as 0.015 percent on Wednesday. Further popularity in Japanese bonds could tip the scale into the negative region.
The primary cause for this trend is the ever growing concern of weak economic growth and increasing bad debts globally. Although the chaos of the Brexit is mostly over, the pound continues its historic slide as two major asset managers in the UK prevent clients from selling real estate holdings. Analysts are now concerned that Italy’s banking crisis could spread throughout Europe and collapse the already fragile Eurozone. Traditional safe havens such as the US and gold have enjoyed rallies as investors avoid emerging markets, but it appears that in this current rally Japan is the favorite. The yen has made incredible gains over the past month as investors avoid equities and instead chose safer bets such as currency and bonds.