The bond market is back in the danger zone — here's what could make it worse: Chart of the Day

The bond market is facing renewed danger as long-term US yields approach multi-decade highs, causing a spike in mortgage and corporate borrowing costs that could impact stocks. Treasury Secretary Scott Bessent is attempting to prevent Japan, the largest holder of US government debt, from exacerbating the situation. Japan's 10-year government bond yields have risen to 3%, the highest level since 1996, signaling a potential shift in investor behavior.

As Japan's pension funds, insurers, and other large investors have been historically major buyers of US bonds due to their historically low rates, the higher yields may prompt them to invest domestically, reducing demand for US Treasurys. This could be further complicated by Japan's potential use of the Fed's FIMA repo facility, which would allow Japan to obtain dollars for its currency purchases rather than selling US bonds.

This development could be instrumental in preventing a weak yen from forcing Japan to sell US Treasurys, but it may not be sufficient to make US debt more attractive to Japanese investors who can now earn 3% at home.