Japan’s bond market just snapped. On July 14, the 10-year government bond yield hit 1.58%. That’s the highest level since 2008. The 30-year yield climbed to 3.16%. Liquidity is vanishing. Bloomberg’s Government Bond Liquidity Index hit 6.5 points. That’s the worst reading ever recorded. Worse than 2008. Worse than 2020. The market is choking on supply.
The Bank of Japan is stepping in. Starting July 17, it will inject U.S. dollars against pooled collateral. No press release. No speech. Just a quiet shift that signals stress. Japanese institutions are feeling the squeeze. They’ve been running dollar carry trades for years. Borrow in yen. Buy U.S. assets. Hedge the FX. That worked when dollar liquidity was loose and hedging was cheap. Now Powell’s holding rates high. The yen’s sliding. The math is breaking down. Rolling those trades is getting expensive. The BOJ is trying to stop a fire before it starts.
This is about global dollar scarcity. When a major central bank starts injecting dollars domestically, it means private markets aren’t doing the job. The cross-currency basis is likely widening. Dollar demand is rising. Supply is tight. The U.S. is exporting interest rate pain. The rest of the world is scrambling to contain it.
Government bond liquidity has never been worse:
The Bloomberg Government Bond Liquidity Index hit a record 6.5 points on Monday.
A higher reading in this index means LESS liquidity for global bond markets.
The index has DOUBLED over the last several months, as government… pic.twitter.com/Z0YpabiPht
— The Kobeissi Letter (@KobeissiLetter) July 14, 2025
While I was sleeping the 30Y JGB yield briefly hit a 3.20% all time high level
I am not sure how most of the Japanese Insurances are still solvent at this level considering they piled up hundreds of billions in assets at this duration or longer when rates were sub 1% 🤔 https://t.co/I7w13O9bvR pic.twitter.com/7u3nREhV0W
— JustDario 🏊♂️ (@DarioCpx) July 15, 2025
U.S. equities are flashing their own warning. The S&P 500 forward P/E ratio hit 22.68 on July 14. That’s the highest in 20 years. Valuations are stretched. Inflation is supposedly down, but yields are climbing. The 30-year Treasury yield is approaching 5.00%. Long-term bonds are selling off. Liquidity is drying up. Government spending in the U.S. and Japan has surged. The bond market is choking.
This is how stress starts. Quiet moves. Technical shifts. Central banks stepping in because private markets are failing. We’ve seen this before. 2008. 2011. 2019. 2020. When dollar funding gets tight, things break. Swap lines get tapped. Repo markets seize. Foreign holders dump U.S. assets. The Fed steps in. Not because inflation is solved. Because the system is wobbling.
This might look like just another central bank liquidity move, but it’s not. The BOJ stepping in to supply U.S. dollars against pooled collateral starting July 17 is one of those quiet, technical shifts that says more than any press release ever could. To me, this is about what’s… https://t.co/DN0g1fQF7n pic.twitter.com/MXov5uFsJn
— EndGame Macro (@onechancefreedm) July 15, 2025
The BOJ sees what’s coming. Q3 and Q4 are loaded with dollar-denominated debt maturities, especially in Asia. If borrowers can’t roll their debt or hedge affordably, defensive firewalls go up. Japan moved first. Others may follow. This is the opening act.
Sources:
https://tradingeconomics.com/japan/government-bond-yield
https://en.macromicro.me/series/20052/sp500-forward-pe-ratio
https://www.boj.or.jp/en/mopo/mpmsche_minu/index.htm
https://www.ebc.com/forex/yen-vs-dollar-impact-of-oil-and-boj-policy-in
