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Foreign Investors Retreat From Japan's Long-Duration Bonds Amid Inflation Concerns

Overseas investors pulled back from Japan's super-long government bonds in the first net outflow since early 2024, marking a significant shift in market sentiment. Rising inflation expectations and concerns over expanded fiscal spending have pushed yields on the nation's longest-dated debt to multi-year highs. This tests investor appetite heading into a scheduled 20-year bond auction. The retreat reflects broader global pressure on fixed-income markets as elevated yields increasingly compete with equity returns. Japan's 10-year government bond yield has climbed above domestic dividend yields by the widest margin since 2007, signaling potential portfolio rotation once bond market volatility moderates. The outflow underscores mounting challenges for the Japanese government's financing operations as yield levels reach levels not seen in nearly two decades.