Japan-led volatility reverberated through global bond markets, prompting market-calming comments from US Treasury Secretary Scott Bessent and drawing comparisons in the media to the UK’s Truss-era bond-market stress.
Is Japan Truss-Worthy?
The comparison is tempting but hard to sustain.
The UK’s 2022 crisis under then-Prime Minister Liz Truss involved a spiral of leveraged pension funds, margin calls and forced liquidations that drove rates sharply higher. However, the Truss episode resembled a typical credit-stress event, in that it ultimately flattened the yield curve; in contrast, Japan’s curve has steepened. Further, leveraged liability-driven investment strategies aren’t widely used in the JGB market, where yields have already stabilized now that the initial shock has passed.
But in our view, the most interesting takeaway from the comparison between the Truss and Takaichi episodes stems from an examination of the maturity profiles of the countries’ debt issuance.
For decades, to minimize refinancing risk, the UK gilt market maintained one of the longest weighted average maturities (WAM) among developed countries. That changed in 2022, when a persistent shortage of demand for long-duration debt forced a rapid shortening of the market’s WAM—a trend that continues today (Display). By contrast, Japan’s WAM appears remarkably stable. But looks can be deceptive.
