The Bondfire of the Insanities Returns

Pour some sake out for Japanese bonds

Mon 14 July 2025... good morning!

Thank you to those who opined on this weekend's note.

While Trump tried to steal all the weekend attention between EU/Mexico tariffs and bum-rushing the Chelsea stage celebration of the Club World Cup, hands down the most important development of the past few days was what happened to the Japanese bond market overnight, which is simply imploding ahead of elections as fiscal worries grow.

Of course, readers are well prepared for this as we laid out the plot in May 20th's The Bondfire of the Insanities.

These are some very serious moves… here’s the Japanese 10Y10Y forward swap (the 10Y rate in 2035), which popped +16bps last night:

Source: PauloMacro via Bloomberg

And here is the 30Y10Y swap (30Y in 2035) which moved twenty-four basis points last night… +24!!

Source: PauloMacro via Bloomberg

Some thoughts on all this…