Name: Japans 20-yr JGB yield surpass U.S. amid concern over fiscal policy
Uploaded: 2026-01-20T08:10:37.772Z
Duration: 4 min 13 s
Description: Matthew Rees, Head of Global Bond Strategies at L&G Asset Management, says investors are pricing in a massive premium at longer-end JGBs over fears that the Japanese government will inflate its debt. He also sees strong returns outside government bonds, with opportunities in credit spreads and non-government sectors.

Matthew Rees, Head of Global Bond Strategies at L&G Asset Management, says investors are pricing in a massive premium at longer-end JGBs over fears that the Japanese government will inflate its debt. He also sees strong returns outside government bonds, with opportunities in credit spreads and non-government sectors.

Tokyo

Japan's 20-year government bond yield has overtaken that of the United States, reflecting market concerns about the country's expansive fiscal policy and potential efforts to manage its debt through inflation. This development is notable given Japan's long history of deflation and signals a significant shift in investor sentiment toward Japanese government bonds.

Investment experts discussed the implications for traditional portfolios, noting that while long-duration bonds carry increased risk, there are still attractive opportunities in non-government fixed income and select emerging markets. The collapse of the Chinese high-yield property sector has led investors to consider alternatives such as Macau gaming and Indian renewable high-yield bonds.

Japan's 20-yr JGB yield surpass U.S. amid concern over fiscal policy

I wonder if we could pivot to Japan. It's a very topical election coming up and there's been a lot of concern that with Takeichi pursuing a more expansive fiscal policy that there's a bit of concern being priced in the long end of the JGBs. Any thoughts on that? There is definitely a lot of concern. I think now we're really seeing two key things the market's pricing in is that one, yeah, there is a massive term premium that's starting to come in and I think two, there's also fears that people have that the Japanese government is going to try and inflate away its debt and you're seeing the levels of where Japanese government bond yields at the long end are are incredible really. When you think that 20 year forwards actually, you know, Japanese government bond yields are above the U.S. In a country that's been mired in deflation for 30 or 40 years the market is pricing in a huge amount I think. Matt, let me ask you a sort of a fundamental investor question and we were talking, Tim and I talked about this earlier, right? Classic 60-40 portfolio for investors, 40 being the bonds. A lot of folks are saying, you know what, bonds really these days aren't doing what they ought to do in a portfolio and you should look at, let's say, increasing your in your equity sleeve, right, for a portfolio exposure to things like, let's say, energy ETFs, right, which pay you pretty well to own to hold them and own them and, by the way, you're also looking a little bit undervalued as well. What do you say to that? Well, obviously I'm totally biased because I manage bonds so I'm a bond guy so actually I think the bonds actually are doing what they said they should do. In 2022 they didn't but since then fixed income returns have actually been really good. I mean pure govies maybe not so good but if you go out of govies you're getting between 6 and 11 percent returns last year in different parts of fixed income so you are getting decent returns so the long end of the curve is something where you have to be concerned about so I don't think you can just take duration without thinking about the risks and there are definitely risks there but there are areas within fixed income where you can get decent enough returns. So risky to go long duration and the key risk basically is reinvestment? Reinvestment but also just absolute loss because we can see with some of the moves we've had in the Japanese government bond yield at the long end that's very very expensive because the convexity of bonds and they're kind of what happens to you when you are exposed you know towards the 30 and the 40 year so you don't have to go that long to be able to get good yield. You can go into non-government parts of the fixed income markets, pick up the additional spread and there are some bits there that have still remained pretty interesting. Diversification is important that's why I think the traditional 60-40 is it's not dead but I think you do need to be more diversified than that but I'm a bond guy I'm biased but I think there's still some pretty good returns there. Credits, corporate paper right there was a time not so long ago when spreads were what spreads right forget papers in this was like they've almost evaporated is that still the case now? It is actually yeah this is the bit that everyone's worrying and you know fixed income geeks like me we worry the spreads are really tight they were almost as tight as they were at the beginning of last year so particularly in investment grade spreads actually haven't moved that much they're still very tight in history but you get a great yield. There are some areas where spreads really have tightened so some parts of emerging markets some parts of high yield some parts of bank subordinated debt spreads have tightened but you're still getting quite an attractive pick up for that credit spread premium. Okay EM debt there was a time when when we said EM debt what we actually meant was Chinese property developer high yield bonds right certainly not the case now there's been reweighting we know that. How does Chinese high yield look now today and I understand that you're actually a little bit more keen on on Macanese and Indian high yield talk to us about that. Well it's partly the there isn't that much left in Chinese high yield property you know because Chinese high property was such a big part of the market most of them went bust and there are still a few stragglers who are still around who are still in some difficulties let's put it that way whereas actually many emerging market high yield investors do quite like yeah Macau gaming it's not actually an area that we like but some investors go to that as a diversifier you know away from Chinese high yield property some parts of India particularly actually in the renewable space I think are actually quite attractive.

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