After intervention and strong intial gains, markets have reverted to 'show me' on yen
Treasury Sec. Scott Bessent has less to boast about these days regarding government debt.
Back in November last year, Treasury Secretary Scott Bessent boasted that U.S. Treasurys were the best-performing government bond market of 2025 and yields all the way out along the curve were lower year-to-date.
Fast forward to high summer 2026 and Bessent is no longer able to make the same claims: in fact, since President Donald Trump's inauguration U.S Treasury securities have underperformed all major government bond indices with the exception of Japan.
Compiling the scorecard for Bessent is Louis Gave, founding partner and chief executive officer of Hong Kong-based Gavekal Research. Especially concerning for Bessent right now is the yield on the U.S. long bond BX:TMUBMUSD30Y breaking out above the 5.20% level.
Country Bid yield on 10-year YTD yield change U.S. 4.7290% .601 Germany 3.1760% .313 U.K. 5.0250% .526 Canada 3.7210% .286 Japan 2.8220% .757 France 4.0070% .446 Source: LSEG
Events in August have complicated Bessent's mission to keep yields under control, but some of the damage is self-inflicted since, as Gave notes. He points to the combined operation with Japan's Ministry of Finance to bolster the yen (USDJPY) at the dollar's expense in the first week of August. The apparent message this maneuver sent was "Do not buy Treasurys; buy Japanese government bonds instead," according to Gave.
Given Japanese investors and institutions own way in excess of $1 trillion U.S. Treasury bonds, this approach seems less than intuitive.
Why do it then? Well, one explanation may be the U.S. trade deficit which has now expanded to $77.6 billion. The overvaluation of the dollar DXY has a lot to do with that, Gave argues, and so the "egregiously undervalued" North Asian currencies (the won (USDKRW) , the yuan (USDCNY), the yen) may now be more of a pressing concern for Bessent than the long bond yield.
U.S trade deficit has started to expand once again
Also, if the Bank of Japan wishes to strengthen the yen by encouraging the repatriation of Japanese capital, this could trigger huge and highly disruptive capital outflows. Attempts to simply talk up the yen were running up against the law of diminishing returns.
One possibility Gave considers is whether Bessent would actually want to steepen the U.S. yield curve by allowing longer-term bond yields TLT to rise more rapidly than at the short end. Steeper yield curves tend to help banks (who borrow short and lend long) and this could stimulate higher nominal GDP growth in the U.S.
On balance, Gave is minded to forecast the yen's depreciating days may be ending. "The Ministry of Finance does seem quite committed to halt the currency's weakness." If the yen's fall is not arrested, the Bank of Japan will be forced to hike rates and as that starts to bolster the currency, it's likely, Gave thinks, that the won and the yuan will follow suit and strengthen also.
For Gave, higher Asian currencies means global reflation.
Since the combined Japanese-American initiative to buttress the yen, it has improved from a low of 164 to 156, before starting to slide again as markets await confirmation that the central banks really do mean business. The dollar is currently around 159.30 yen, retracing roughly half its original gains.
-Jules Rimmer
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