Sovereign Debt Yields Rise as Fiscal and Tariff Concerns Crowd Out Soft Economic Data – Currency Thoughts
Sovereign Debt Yields Rise as Fiscal and Tariff Concerns Crowd Out Soft Economic Data
July 14, 2025
(183) A six-basis point increase of the 10-year Japanese government bond yield (JGB) led a rise in comparable sovereign debt yields this Monday that also included increases of two bps in France and Italy and a single basis point in the United States, Germany, Spain and Italy. At 1.58%, the Japanese yield is 19 basis points above its level on July 1st. For years, the JGB had confounded debt concerns from Japan’s massive fiscal debt, which now hovers around 240% of GDP. With core Japanese consumer price inflation at or above 2.0% for the past three years and in light of mounting U.S. fiscal concerns due to the recently passed “big beautiful bill,” the disconnection between Japanese long-term interest rates and the economies massive fiscal deficit is starting to fray.
U.S. President Trump’s infatuation with tariffs has been another sources of concerns about global inflation and fiscal debt. Proposed 30% tariffs against the European Union and Mexico were added over the weekend to a lengthening list of economies facing huge U.S. tariff hikes effective August 1st. At the same time, extra uncertainty regarding that date has been injected by a judicial challenge to its constitutionality that will be heard on July 31st.
Among other financial market highlight this Monday, a fresh surge of interest in digital money sent the price of Bitcoin soaring to yet another record high earlier today of $122,741, 31% above its end-2024 level. The net change for the day so far is a jump of 2.3%.
The prices of WTI oil and Comex gold are 1.5% and 0.4% higher today.
Net dollar movements have been mixed and largely inconsequential.
U.S. stock futures were down around 0.3% a half hour before today’s opening bell. Equity markets in Asia today ranged from increases of 0.8% in South Korea and 0.5% in Singapore to declines of 0.6% in Taiwan and 0.3% in Japan. The German Dax has faltered 1.0%, leading Euroland’s adverse reaction to Trump’s proposed tariff against the European Union.
Despite Trump’s warnings against countries facing higher U.S. tariffs not to collude with one another in a coordinated response against the United States, that’s exactly what they are doing in a classic tariff war dynamic.
Disappointing Japanese released data today added to the adverse attention directed at that economy.
- Core private domestic orders for machinery fell 0.6% in May on top of a 9.1% plunge in April, while foreign orders for Japanese machinery sank 0.6% on month and 11.8% year-on-year.
- Industrial production in May was revised from a 0.5% increase reported initially to a 0.1% downtick that was associated with a 2.4% year-on-year drop that was the worst reading in a half year and almost as large as the 2.6% average decline in 2024.
China had some stronger-than-forecast data to announce, by contrast. China’s trade surplus widened sharply to $114.8 billion last month from $103.2 billion in Marah and $98.9 billion in June 2024. The first half deficit of $586 billion was 34% larger than $436 billion a year earlier, with exports rising 5.9% and imports dropping by 3.9%. China also reported a 5-month high figure for new yuan loans of CNY 2.24 billion and a 15-month peak in year-on-year growth of the M2 stock of money.
GDP in Singapore advanced 1.4% in the second quarter of 2025, its fastest pace in three quarter and which resulted in a greater-than-forecast 4.3% increase from a year earlier. GDP had expanded 1.8% in both 2023 and 2024.
In India, which recently surpassed China as the world’s most populated country, consumer price inflation declined more than forecast to a 77-month low of 2.1% in June from 2.8% in May and 6.2% as recently as October 2024. Indian wholesale price inflation fell by half a percentage point to a 20-month low of -0.1% last month.
Sweden and Switzerland also experienced very depressed inflation during June. Swedish consumer price inflation was revised 0.1 percentage point lower to 0.7%. Meanwhile, the Swiss combined producer price/import price index edged 0.1% lower on month and matched May’s 5-month year-on-year low of -0.7%. Compared to June 2024, domestic producer prices rose just 0.3%, while import prices fell by 2.8%.
The Czech current account surplus in January-May of EUR 119.5 billion was 9.4% smaller than a year earlier, and Latvia’s current account deficit of EUR 447 million was 40% bigger than a year before.
There’s not much to report for central bank watchers today, just that President Trump continues to criticize Fed Chairman Powell, whom he had appointed initially, and that Bank of England Governor Bailey made some dovish comments about a possible need to quicken the pace of monetary easing if Britain’s labor market continues to soften. That might explain the marginal downtick of the 10-year gilt yield and the 0.4% rise of the FTSE stock index.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China trade balance, Indian CPI iand PPI, Swiss PPI/import price index, tariff war developments
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