Core Viewpoint - The demand for Japanese government bonds is under scrutiny as the first ultra-long bond issuance follows a weak auction last week, leading to record-high yields [1][4]. Group 1: Bond Market Dynamics - The recent auction of 20-year bonds saw the weakest demand in over a decade, causing yields to surge to record levels [1]. - The upcoming issuance of 40-year bonds is pressured by rising long-term borrowing costs in major economies, including the U.S. [1]. - The yield on 30-year and 40-year bonds has reached their highest levels since issuance due to instability in ultra-long bonds [1]. Group 2: Investor Sentiment and Market Reactions - Rising yields have diminished investor interest, with few willing to actively bid in upcoming auctions [4]. - The 10-year government bond yield was approximately 1.52%, having reached its highest level since 2008 earlier in March [4]. - Concerns over Japan's fiscal situation have been raised, with the Prime Minister warning that it is worse than Greece's [4]. Group 3: Institutional Responses - Major life insurance companies have reported unrealized losses of about $600 million on domestic bond holdings for the latest fiscal year [4]. - The Bank of Japan is preparing to review its bond purchase plan, responding to concerns from major life insurers and pension funds regarding rising yields [4]. - Sun Life Insurance plans to increase its domestic bond holdings but may delay some investments due to liquidity and price volatility concerns [5]. Group 4: Auction Expectations - Some market participants are optimistic that a strong result from the 40-year bond auction could halt the recent rise in yields [5]. - Factors such as high yield levels, reduced issuance, and investor-friendly auction formats may contribute to a successful auction outcome [5].

Core Viewpoint - The U.S. economy is facing new challenges as rising government borrowing costs and a potential increase in the deficit threaten to impact fiscal sustainability and economic growth [1][3]. Group 1: Economic Impact - The recent downgrade of the U.S. credit rating by Moody's and the challenges in passing the Republican tax bill have led to a sell-off in U.S. Treasuries, causing yields to rise sharply [1]. - The 30-year Treasury yield reached 5.089%, the highest level since October 2023, while the 10-year Treasury yield rose to 4.595%, marking its peak since February 2023 [1]. - The Congressional Budget Office (CBO) predicts that the Republican tax plan could increase the deficit to about 7% of GDP, an unprecedented level for a low-unemployment economy [3]. Group 2: Fiscal Policy Concerns - The rising interest rates mean the government will need to allocate more funds to cover interest payments on nearly $29 trillion in debt, potentially leading to higher taxes or reduced government services for citizens [4]. - The high-interest environment not only affects government finances but also increases borrowing costs for consumers and businesses, which could suppress economic activity [4]. Group 3: Political Dynamics - There is skepticism regarding whether the Trump administration will make significant fiscal adjustments, as Republican leaders believe that economic growth from tariffs and deregulation will offset revenue losses from tax cuts [5]. - Analysts suggest that there will be no substantial fiscal consolidation in the foreseeable future, and the U.S. is likely to continue running large deficits [5]. - The Trump administration's previous promises to address the deficit through significant spending cuts have been scaled back, with current Republican sentiment showing less concern for fiscal deficits compared to a decade ago [5].