Yields rise on European tariff and Japan bond chaos. The yield curve steepened significantly today with the long-end up 10 bps overnight as fiscal concerns in Japan triggered a bond selloff that rippled into US markets. Tensions with Europe over Greenland also contributed, as Trump threatened tariffs on various European nations and news emerged that a Danish pension fund plans to exit Treasuries. The 2-year yield closed 1bp higher at 3.60%, while the 10-year yield and 30-year yield closed 7-8 bps higher at 4.29% and 4.92%, respectively. Meanwhile, equities saw their worst session since Liberation Day last April, with the S&P 500 down 2.06% and the NASDAQ down 2.39%.
Japan bond selloff pushes yields to highest level in decades. Longer-dated Japanese bonds soared today, with 30- and 40-year yields climbing more than 25 bps, as a snap election called by Prime Minister Sanae Takaichi spurred concerns of looser government spending. Takaichi pledged to suspend an 8% sales tax on food and beverages if her new mandate wins in the snap election, a measure that the Finance Ministry predicts would cost roughly $31.6 billion annually and would be largely funded through government debt issuance. Following the selloff, Japanese Finance Minister Satsuki Katayama said, “I’d like everyone in the market to calm down,” citing Japan’s fiscal responsibility as it currently has its lowest reliance on debt issuance in 30 years and the smallest fiscal deficit among G7 economies.
Trump threatens 10% tariffs on European nations opposed to Greenland acquisition. President Trump threatened to impose a 10% tariff on eight European countries who he claims are getting in the way of his attempt to have the US purchase Greenland, a Danish territory. Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland, would be subject to Trump’s proposed tariffs. A 10% tariff would go into effect on February 1 and increase to 25% on June 1 if no deal is reached. Ursula von der Leye, the European Commission President, called Trump’s threats a “mistake” and in violation of the trade agreement formed between the US and the EU bloc last year. European officials have reportedly begun drafting plans for retaliation, a potential tit-for-tat that could further escalate tensions.