Graphic: Japan’s government bond yields on the upswing
Japan recently ended its negative interest-rate policy after a period during which other central banks hiked rates to combat inflation. Recently, Japan set a zero to 0.1% targeted short-term rate and loosened controls on 10-year yields. While economists expect Japan and the EU's long-term yields to increase, they project them to fall in other developed countries, providing investors an opportunity to lock in higher yields.
Locking in yields: Government bond yields have risen over the past few years, with the U.S. 10-year yield the highest at 4.55% as of April 10. Japan's 10-year yield is the lowest among those examined at 0.81%, but economists project they'll keep climbing through the end of 2025 while yields in other countries, including the U.S., will drop.
10-year yield comparison**
Falling inflation: Japan's consumer price index rose 3.3% last year, and economists expect it to slow to 2.3% this year. That's much higher than the country's 0.73% 10-year yield. Economists also expect CPIs in the U.S., EU and the other countries to continue slowing.
Developed country CPI
Deficit spending: A number of countries as well as the European Union have budget deficits, which some economists expect will impact long-term yields in the future. Last year, the U.S. deficit accounted for 6.5% of gross domestic product.
Deficit as % of GDP
Funds' holdings: The median pension plan had 11% of its fixed-income allocation in non-U.S. developed markets, based on the 22 defined benefit plans that provided this information in P&I's survey of the largest plan sponsors.
% of fixed income in non-U.S. developed markets
*As of March 25. **Year-end data unless otherwise noted. Sources: Bloomberg, U.S. Department of the Treasury, Pensions & Investments