New Delhi, Sep 2 (SocialNews.XYZ) Veteran banker Uday Kotak on Wednesday warned investors of heightened volatility in global interest-rate markets, saying rising government debt and fiscal deficits could force central banks to expand their balance sheets, fuelling inflation and pushing short-term interest rates higher.
His warning comes as Japan’s 10-year government bond yield crossed 3 per cent for the first time since 1996, while the US 10-year yield moved closer to 4.8 per cent.
In a post on social media platform X, Kotak said that as government debt and deficits increase, central banks may have no option but to expand balance sheets (print money).
If that happens, he said, inflation and short-end interest rates could rise, urging investors to be prepared for a roller coaster ride in interest rate markets.
"Japan’s 10 year bond crosses 3 per cent and US 4.8 per cent. As their government debt and deficits go up, central banks may have no option but to expand balance sheets( print money). If so, inflation goes up, short end rates go up. Be ready for a roller coaster ride in interest rate markets!" Kotak stated.
The sharp move in Japanese bond yields is particularly significant for global markets. Japan has traditionally been one of the world's largest pools of savings, with its ultra-low interest rates encouraging Japanese investors to invest heavily in overseas bonds and other assets.
A sustained increase in Japanese yields could gradually alter that dynamic. If domestic Japanese assets begin offering more attractive returns, investors may reduce their incremental purchases of overseas bonds, potentially putting upward pressure on global yields.
In Japan, the 10-year government bond yield has more than tripled over the past two years, driven by concerns over rising inflation, the country’s fiscal position and expectations that the Bank of Japan may accelerate its pace of interest-rate hikes.
Yields have also climbed sharply across the shorter end of the Japanese government bond curve. The five-year yield hit a record 2.265 per cent, while the two-year yield rose to a 31-year high of 1.81 per cent as markets priced in the likelihood of a BOJ rate hike at its meeting later this month.
Source: IANS
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