Japan sold $29.6 billion in U.S. debt in Q1 2026

Japan investors pulled $29.6 billion out of U.S. government-linked debt in the first quarter of 2026, the country’s biggest quarterly sale since the second quarter of 2022, which was basically four years ago.

Q1 also broke a strong buying run, because Japanese accounts had bought U.S. debt in 11 of the previous 12 quarters, and this was their first quarterly net sale since Q4 2024. The agency bucket covers mortgage-backed securities and debt tied to government-backed firms.

Local authority debt covers municipal bonds sold by U.S. states, cities, and local governments. In the first two months of the year alone, Japanese investors sold $4.14 billion of U.S. agency bonds, based on the latest U.S. Treasury Department figures.

Japanese investors cut U.S. debt holdings as inflation changes the Fed trade

Activity was back to normal after the painful rate repricing in February, where the OIS priced in a Fed rate cut twice in the coming months. Obviously, that was before the United States, in tandem with Israel, bombed Iran, oil surged 50%, and traders changed their stance to a rate hike for the upcoming period.

The Japanese continue to hold a bigger share of U.S. debt among all foreigners, with around $1.24 trillion in total. Next is the United Kingdom with $897 billion, followed by China with $693 billion. But now data suggest that the Japanese are selling off their positions in U.S. bonds because of better yields offered domestically.

The 10-year JGB yields reached 2.73%, which is the highest level seen since May 1997. Markets predict an increase in the central bank’s policy rate by 25 basis points to 1% for June due to persistently strong inflation.

The 30-year JGB yield reached 4% for the first time since the bond was launched in 1999. The 5-year and 20-year JGB yields also touched record highs earlier in the week.

Finance Minister Satsuki Katayama said Friday that government bond yields were rising across the biggest global markets. “These developments are interacting with one another, and that is creating a compounding effect,” Satsuki told reporters.

Global bond markets sell off as oil, auctions, and Fed warnings hit traders

Japan’s Prime Minister Takaichi Sanae won a landslide election in February after promising more public spending and help against inflation.

Sanae’s government is already subsidizing petrol prices. Economists now warn that her administration may need a supplementary budget later this year, which would put more pressure on JGB prices.

Over in America, Trump’s war-driven price fears are pushing borrowing costs higher, with the 30-year Treasury yield heading toward a two-decade high above 5%.

Treasury yields are now roughly half a percentage point or more above late-February levels. The 2-year yield reached 4.07%, its highest since early 2025. The 10-year yield hit 4.59% after rising about a quarter point last week, its biggest weekly jump since April last year.

Long-term Treasury yields matter because they feed into mortgage rates and corporate loans. Bond investors have spent two months watching for signs that high oil prices could hurt growth more than inflation. Higher long-term yields have brought that question back.

Last week’s auctions gave traders nothing cute to smile about. The 30-year Treasury sale was the first since 2007 to clear at a rate as high as 5%, and demand was still plain. The 3-year and 10-year auctions also drew average interest.

A JPMorgan Chase & Co. (JPM) survey showed Treasury short positions at their highest level in 13 weeks. Investors will now watch Wednesday’s Fed April meeting minutes to see how much backing dissenting voters had. Chicago Fed President Austan Goolsbee said broad price pressure may point to overheating. Fed Governor Michael Barr called inflation the “overwhelming” risk facing the economy.

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