Breaking: Japan's Bond Yields Surge – Impact on Stocks
In a Nutshell
Japan’s 31-year high bond yields are forcing potential US Treasury liquidations that could push American yields higher and increase borrowing costs on $40 trillion in debt. Markets are rallying on unverified Trump-Iran peace claims that have already proven false, creating a short-lived “bull trap” driven by a handful of MAG 7 stocks. Long-term investors should continue dollar-cost averaging without leverage, while traders should cut exposure and avoid overbought, news-driven bounces that typically retrace quickly.
These notes were generated by AI and may contain inaccuracies.
Be careful falling for the bull trap. If you are investing long-term, volatility shouldn't bother you because there will be volatility that presents itself. You're just doing your part as the market sells off to dollar cost average into companies that you see value in. Just make sure you don't use leverage and understand that it can get worse before it gets better.
Day traders are buying into the hype that markets are beginning to recover when nothing has changed.
President Trump called out Iranian leadership and claimed he has full control of the Strait of Hormuz. This claim is not true. He supposedly wanted to sign an agreement and work on a peace deal with Iran. He made the claim, influenced markets, and the NASDAQ market is up 1.46%.
Markets might be celebrating a peace deal even if it's not true. Anytime Trump announces a peace deal, markets love it even if it's not true. When it's confirmed that it's not true, they barely sell off. This is the part that would be concerning.
Japan's 2-year and 5-year bond yields have hit the highest level in 31 years. If the Japanese market continues to get worse and the dollar for the Japanese yen continues to fall, the US has to continue to try to intervene.
Japan is one of the largest foreign holders in US treasuries. If they need to step in to help support their economy, they will have to liquidate some of the bonds that they own from the US. If they begin to flood the bond market and begin to sell, US bond yields will begin to go higher.
The US doesn't want their yields to go higher because that means they pay more interest on money that they borrow. We're $40 trillion in debt. Treasury Secretary Bessent is saying that they have it all under control, but if they had it all under control, bond yields would reflect that.
US bond yields and Japanese bond yields have been creeping up higher, which shows signs of uncertainty. This is a straightforward look into the carry trade and what unfolded once that issue began to present itself.
Markets sold off during the pre-market session and propped themselves up as markets opened. The news that wasn't already factored in is Trump saying he has full control of the Strait of Hormuz. There's nothing wrong with trading the news because that's the market's reaction, but don't fall victim to false hope. We know it's not true, and the past weeks have proven that it is not true. Just as quickly as they rally, they tend to correct.
What caused markets to sell off last week is still present - the Japanese market and the South Korean market. The KOSPI index sold off during their trading session this morning. There's still fear and uncertainty in their market. If it's still getting worse for them, then it's likely that it's most likely going to get worse for chip stocks here.
The thing driving markets higher today is a handful of MAG 7 companies skyrocketing. Great earnings for a trillion dollar company may not justify a 25% push. Zoom out and ask if a 4% gain today represents a 25% gain in three trading days, which might be an overreaction that could lead to some correction.
If a correction does happen with these stocks since they're so influential, the rest of the market could begin to fall.
Microsoft is up 4.97%, Meta is up 7.1%, and Nvidia is up 3%.
For investors, there's no intention of selling any investments, only plans to buy more. For traders, as markets prop themselves up higher and news and sentiment has still been uncertain, overleveraging at overbought levels should be questioned.
There's nothing wrong with pullbacks, especially when you can stomach it and tolerate it. It's only the overleveraged traders, the ones that are all in and or are using leverage, that end up getting margin called on the retracement.
Markets gapped up within a very short period of time for no reason and now have gap down potential. Not that they have to sell off, but if fears from last week begin to present themselves again, or if any earnings reports or economic reports instill more fear, you can't be surprised.
Palantir is reporting earnings today after the market closes. AMD and SpaceX report after the market closes tomorrow or Wednesday. SanDisk and Western Digital report on Wednesday after the market closes.
Trump often lies just to prop up markets to give it some certainty for a period of time before he attacks again. These are short-lived catalysts that have not much merit to what he says. This is the 22nd week in a row of this pattern.
Be careful with your exposure, position size, and most importantly, your leverage. As markets sell off, adding more to long positions but not with leverage. Respecting that these sharp recoveries tend to be short-lived, especially when a lot of them are being influenced by Trump's tweets that do move markets.
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