Global bond markets are likely to stay elevated as Japan’s yen carry trade begins to unwind, according to Murthy Nagarajan, Head–Fixed Income at Tata Asset Management.
He explained that with investors borrowing in yen to fund investments in higher-yielding assets, the recent surge in Japanese government bond yields is set to disrupt capital flows across both developed and emerging markets.
This shift, he noted, will add pressure to keep global bond yields high and influence risk sentiment worldwide. Edited Excerpts
With the U.S. imposing new tariffs and global trade tensions rising, how are bond yields reacting, and what does it mean for fixed income investors?
A) Higher borrowings and absence of foreign debt investors are leading to rise in yields in developed markets, as the trade surplus is expected to reduce for emerging market countries.
U.S. bond yields remain elevated are we entering a “higher-for-longer” regime, and how should Indian debt investors position themselves?
A) US bond yields effect flows into emerging markets and currency movement. Right now, FII flows to India are negative in equity and bond markets and some currency depreciation is welcome due to Trump tariffs on India. This will only have a marginal impact, if at all.
Japan’s long-term government bond yields have surged to multi-decade highs. How significant is this shift for global capital flows and risk sentiment?
A) Flows to emerging markets and developed markets will be affected as the YEN is used for carry trades. Borrowing in YEN and investing in high yielding assets. This should keep global bond yields elevated.