Japan's Bond Market Stabilization Efforts Spark Global Bond Rally

Japan's 20-Year Bond Yield Plummets by 21bp

10-Year US and Eurozone Bonds Also Stabilize

Nvidia Earnings and US April PCE in Focus This Week

Global bond prices rose as Japan hinted at raising interest rates and stabilizing the bond market. The dollar rebounded.

On the 27th (local time), Bloomberg reported that Japan's Ministry of Finance asked market participants for their opinions on the appropriate issuance size of government bonds, leading to a drop of up to 21 basis points (1bp=0.01%) in the yield on Japan's 20-year bonds. Bond prices and yields move in opposite directions.

With the decline in Japanese bond yields and expected reduction in supply weakening competition for dollar assets, the yield on 10-year US Treasuries fell by 6bp to 4.45% on the day. Benchmark 10-year bond yields in Germany and the UK also fell by 4bp and 6bp, respectively.

The Bloomberg Dollar Spot Index rose by 0.2%, while the euro fell by 0.3% to trade at $1.1356. The Japanese yen fell by 0.4% to 143.47 yen per dollar.

Japanese stocks rose on news of Japan's bond market stabilization efforts, but other Asian stocks were mixed. Japan's benchmark Nikkei 225 index closed up 0.51% at 37,724.11. In South Korea, the KOSPI index, which hit a three-month high the previous day, fell by 0.27%.

China's CSI300 index fell by 0.52%, while Hong Kong's Hang Seng index rose by 0.39%. China's industrial profits for April improved to a 1.4% increase from 0.8% the previous month.

US stocks, which were closed for the Memorial Day holiday the previous day, saw Dow Jones Industrial Average futures rise by 1% as President Trump retracted his threat to impose a 50% tariff on EU imports next month. S&P 500 futures rose by 1.1%, and Nasdaq 100 futures increased by 1.3%.

As of 9 a.m. London time, the Stoxx Europe 600 was up by 0.2%.

Last week's sale of Japan's 20-year bonds recorded the lowest demand in over a decade, causing a surge in Japanese bond yields. Concerns about widening fiscal deficits in developed countries like the US and Japan have led to a global surge in long-term bond yields.

The dollar lost its appeal as a safe-haven asset due to Trump's change in stance on tariffs and concerns over the worsening US fiscal deficit outlook, prompting investors to flock to alternative assets like gold. As a result, gold prices hit an all-time high this year. Gold traded down by 0.3% at $3,331.79 per ounce in the European market.

International oil prices fell on expectations that the OPEC+ meeting this weekend will decide on increasing oil production. Brent crude futures fell by 0.22% to $64.60 per barrel. US West Texas Intermediate (WTI) crude fell by 0.33% to $61.33 per barrel.

Aaron Chui, head of asset management at OCBC, said, "The futures market has recovered with the delay in EU tariffs, but fundamental concerns about trade relations and future economic indicators continue to weigh on investor sentiment."

Investors' main focus this week is Nvidia's earnings, which will be announced on the afternoon of the 28th local time. Wall Street analysts predict Nvidia's fiscal first-quarter sales to have increased by 65.9%.

Also scheduled are speeches by Federal Reserve policymakers and the release of the US core Personal Consumption Expenditures (PCE) price index on Friday, which is expected to provide clues about the US interest rate outlook.

Guest reporter Kim Jung-ah kja@hankyung.com