(Aug 24): Two Japanese bond auctions next week may challenge US Treasury Secretary Scott Bessent’s efforts to subdue longer-maturity Treasury yields.

Japan is selling 10-year bonds on Sept 1 and 30-year securities two days later. Poor demand may spur a selloff, an indication that higher yields are needed to sooth concerns over the government’s fiscal borrowings.

That could ricochet around the world, where investors increasingly have competing options for higher yields. A surge in one major market often spreads as traders then demand more compensation elsewhere. Japanese bonds used to anchor global borrowing costs with the nation’s negative interest-rate policy, but a series of rate hikes and rising fiscal concerns have turned them into a source of instability over the past two years.

“Markets will be watching the coming JGB auctions very closely,” said Andrew Ticehurst, a senior rates strategist at Nomura Holdings Inc in Sydney. “If the auctions go poorly, JGB yields will rise and that might make the market more attractive for local investors — and put more upward pressure on Treasury yields.”

Renewed fiscal concerns have driven a selloff in major debt markets in recent weeks, with US 30-year yields climbing to their highest level since 2007. Germany sold equivalent bonds this month at yields that were the highest in 15 years. French borrowing costs have also hit the highest since 2008, while Japanese ones are close to a record.

“Fiscal concerns and inflation are themes that are common across Japan, the US and Europe,” said Naoya Hasegawa, chief bond strategist at Okasan Securities in Tokyo. “Rising yields in Japan could have a global impact.”

To bring borrowing costs down, Bessent last week announced plans to expand buybacks of longer-maturity Treasuries. The subsequent rally in the securities proved short-lived, with yields resuming their uptrend a day later.

The US 30-year yield fell two basis points to 5.25% Monday after rising as high as 5.34% last week. The equivalent bond in Japan saw yields slip one basis point to 4.055%.

There are other near-term risks for bonds too. The US Treasury secretary is due to speak Monday and Federal Reserve Chairman Kevin Warsh is scheduled to appear Friday at the central bank’s annual gathering at Jackson Hole, Wyoming.

Japan’s 20-year government bond auction on Aug 20 — which took place the day after Bessent’s announcement — drew decent demand. Still, yields have risen since then, and they’re now hovering near their highest level since 1996.

“If next week’s JGB auctions go badly and trigger another selloff, I wouldn’t be surprised to see that spill over into Treasuries as well, pushing US yields higher despite Bessent’s efforts,” said Rinto Maruyama, senior foreign exchange and rates strategist at SMBC Nikko Securities Inc in Tokyo.

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