Recently, the long-end government bond yields in both the United States and Japan have surged sharply, drawing significant global attention. In late May, the yield on the U.S. 30-year Treasury surpassed 5.15%, reaching its highest level in recent years. Meanwhile, Japan's 30-year government bond yield climbed to 3.2%, and the 40-year yield hit 3.7% — levels not seen in decades.

Why Are U.S. Treasury Yields Continuing to Rise?

The recent surge in U.S. Treasury yields has shown clear phases. In early May, strong non-farm payroll data and progress in U.S.-China trade talks led to a sharp repricing of Federal Reserve rate cut expectations. Market forecasts for four rate cuts in 2024 were quickly revised down to just two—or even fewer, totaling less than 50 basis points—pushing long-term yields higher. Since mid-May, however, the continued rise in yields has been driven mainly by an increase in term premiums.

Looking ahead, there are three key factors to watch for the trajectory of U.S. yields:

1、Macroeconomic fundamentals and monetary policy expectations remain the primary short-term drivers. If economic data remains robust, markets may further delay expectations for rate cuts.

2、Bond supply and demand dynamics will continue to exert pressure, particularly as the U.S. Treasury approaches its Q3 issuance peak.

3、Dollar exchange rates and foreign investor behavior are also crucial. If expectations for a weaker dollar intensify, foreign investors may begin reducing their U.S. bond holdings, further amplifying upward pressure on yields.

The Underlying Logic Behind Rising Japanese Government Bond Yields

Last week, Japan’s ultra-long government bond yields surged sharply, with the 30-year yield hitting a record high since the bond’s inception in 1999. This steepening of the Japanese yield curve began in 2022 and has been consistently supported by rising inflation data over the past two years.

From a medium-term perspective, in addition to the rebound in inflation and weakening bond market liquidity, mounting pressure in Japan’s labor market has become a key driver. The country’s unemployment rate is now at its lowest level since 1995, while the job openings-to-applicants ratio remains historically elevated, reflecting a severe labor shortage. Against this backdrop, the 2025 “Shunto” spring wage negotiations resulted in companies agreeing to an average wage increase of 5.46%—the highest in 33 years—intensifying a “wage–inflation” spiral.

With persistent inflationary pressures and rising wage expectations, the Bank of Japan may still have room for additional rate hikes within the year, which could further reinforce upward momentum in bond yields.

How Rising Global Bond Yields May Transmit to China’s Market

First, the global trend of “de-dollarization” could enhance the strategic value of RMB-denominated assets. As the U.S. dollar weakens and fiscal expansion gains momentum in certain countries, foreign investors may gradually increase allocations to Chinese bonds, Hong Kong equities, and safe-haven assets like gold, boosting the appeal of Chinese markets. However, globally rising interest rates will constrain the room for China’s monetary easing. In particular, a narrowing China-U.S. yield spread could intensify capital outflow pressure, posing risks to market stability.

Second, the risk of carry trade unwinding and global liquidity tightening should not be overlooked. Historically, surges in Japanese government bond yields have triggered the unwinding of yen carry trades, often coinciding with weaker performance in China’s equity markets. If U.S. bond yield spikes ease in the short term while Japan maintains a strong rate-hike outlook, capital flow reversals could resume, putting renewed pressure on both China’s stock and bond markets.

Lastly, the “East rising, West falling” narrative and potential capital spillover from U.S. treasuries may offer a tailwind for China. As capital exits Japanese and other developed markets, it may seek higher returns and stronger safe-haven characteristics in China, particularly in the Hong Kong and onshore equity markets. That said, this positive effect relies heavily on a clear and sustained improvement in China’s economic fundamentals; otherwise, such inflows may remain short-lived.