A fascinating contrast emerged in early 2026: US Treasury yields continued to decline, while Japanese bonds experienced significant sell-offs. It seems contradictory, but a deeper look reveals that this is actually an inevitable result of the misalignment of global interest rate cycles and the reallocation of capital.

**Turning Point in Interest Rate Policies**

The Fed's signals of rate cuts (expected to cut 100 basis points in 2026) directly supported the strength of US Treasuries. In contrast, the Bank of Japan is accelerating its exit from negative interest rates, which has become the trigger for Japanese bond sell-offs. But this is not just simple policy hedging. Looking at inflation data makes it clear: the US has pushed inflation down to 2.5%, while Japan's core CPI has surged to 3%. The economic cycles are out of sync, and the bond markets' reactions naturally differ.

Another key point — the safe-haven attribute of US Treasuries is strengthening. In 2025, the volatility of US Treasuries was only 12%, much lower than Japan's 18%. Under uncertainty, international capital naturally flows toward more stable assets.

**Debt Capacity Determines Capital Choices**

The US Treasury issued 50-year bonds, which were met with strong demand. Conversely, Japan's government debt has expanded to 260% of GDP, a figure backed by heavy debt repayment pressures. The direction of capital voting with its feet is clear: countries with strong debt monetization capabilities have more attractive bonds.

Looking at central bank holdings makes this obvious — the Federal Reserve holds 25% of US Treasuries, while the Bank of Japan holds over 50%. The deeper the central bank's intervention, the more limited the space for policy adjustments, which also affects market risk pricing.

**Divergence in Bond Types and Maturity Preferences**

Demand for US TIPS (inflation-protected securities) has recently surged, indicating that investors' concerns about long-term inflation have not fully dissipated. In contrast, Japan's inflation expectations are still unstable, and funds prefer to lock in short-term bonds. This difference is directly reflected in the yield curves — the US Treasury curve has steepened, while the Japanese bond curve has become flatter.