U.S. Treasurys are facing increased competition from Japanese bonds, where rising yields are making the notes more attractive for local buyers, according to Deutsche Bank.
George Saravelos, head of FX research, flagged the recent divergence between U.S. yields and the Japanese yen exchange rate. He called the move the "single most important market indicator of accelerating U.S. fiscal risks,” because it shows wary foreign buyers are divesting cash from the Treasury market.
"The Japanese yen is strengthening even as U.S. yields are rising,” Saravelos wrote in a note. "We consider this as evidence that foreign participation in the U.S. Treasury market is declining.”
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