Bond Market Turmoil in Tokyo: French OATs Steal the Spotlight in 2026

• What’s Happening in Tokyo’s Bond Market?
• Why Are US Treasury Bonds Under Pressure?
• How Are European Bonds Reacting?
• What’s Driving the US-Europe Trade Tensions?
• Why Are OATs Outperforming?
• Historical Context: When Did Japanese Yields Last Top Europe’s?
• What’s Next for Global Bonds?
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The bond markets are in chaos as Tokyo experiences a mini-crash, with Japanese long-term yields surging past European and US levels for the first time in decades. Meanwhile, French OATs remain stable amid the storm, thanks to political stability in Paris. This article dives into the bond market upheaval, US-Europe trade tensions, and why OATs are the unexpected winners of 2026.

What’s Happening in Tokyo’s Bond Market?

The Bank of Japan (BoJ) has been losing control over its bond market for months, but January 2026 marked a tipping point. The 10-year Japanese government bond (JGB) yield spiked by 16.4 basis points to 2.348%, while longer maturities saw even sharper moves: the 20-year surged 23 points to 3.473%, the 30-year jumped 31 points to 3.911%, and the 40-year climbed 30 points to 4.226%. Historically, such moves WOULD take a full quarter—this is happening in days. For context, Japanese long-term yields haven’t surpassed eurozone rates since the euro’s inception or matched US yields in 36 years.

Why Are US Treasury Bonds Under Pressure?

Despite a stock market dip linked to Donald Trump’s latest protectionist threats against Europe, US Treasuries aren’t benefiting from a "risk-off" rally. The 10-year T-bond yield broke above 4.25%, hitting 4.285% (+5 bps), while the 30-year soared to 4.92% (+8 bps). Only the 2-year held steady at 3.595%. Analysts at BTCC note that the lack of safe-haven demand for Treasuries is unusual, suggesting deeper structural concerns.

How Are European Bonds Reacting?

French OATs are the outlier, stabilizing at 3.525% as political uncertainty eases—the 2026 budget survived a no-confidence vote, keeping Prime Minister Sébastien Lecornu in office. Elsewhere, German Bunds tightened (+2.2 bps to 2.861%), Spanish Bonos hit 3.255%, and Italian BTPs worsened (+3.1 bps to 3.463%). The OAT/Bund spread narrowed to 66.5–67 bps, an 18-month low.

What’s Driving the US-Europe Trade Tensions?

Trump’s Greenland obsession escalated this week. After Macron rejected joining his "$1 billion entry-fee Peace Council," TRUMP threatened 200% tariffs on French wines and champagnes. On Saturday, he announced 10% tariffs (rising to 25% by June) on goods from eight EU countries unless Greenland negotiations progress. "European leaders won’t last long," he quipped from a Florida airport en route to Davos.

Why Are OATs Outperforming?

France’s political calm contrasts with broader market stress. The OAT/Bund spread compression reflects investor confidence in Lecornu’s fiscal roadmap. Meanwhile, UK Gilts tanked (+5 bps to 4.468%) as budget deficits persist. "OATs are the eurozone’s SAFE haven for now," says a BTCC strategist.

Historical Context: When Did Japanese Yields Last Top Europe’s?

Never—until now. The 30-year JGB yield (3.911%) briefly overtook Germany’s (3.91%) on January 20, 2026, a first since the euro launched in 1999. The last time Japan’s yields rivaled the US’s was 1990, during its asset bubble collapse.

What’s Next for Global Bonds?

With central banks visibly struggling to control curves, volatility is the new normal. The BoJ’s passive stance and the Fed’s inflation fight create a "tug-of-war" market. As for OATs? Their resilience hinges on Macron’s successor avoiding fiscal drama.

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What caused the bond market crash in Tokyo?

The Bank of Japan’s prolonged loss of control over yield curves, compounded by a sudden loss of confidence in long-term debt sustainability, triggered the sell-off.

Why are French bonds stable despite global turmoil?

Political stability after the failed 2026 budget censure vote and perceived fiscal discipline under Lecornu’s government have buoyed OATs.

How high could US tariffs on EU goods go?

Trump’s proposed tariffs start at 10% on February 1, 2026, escalating to 25% by June 1 if no Greenland deal is reached.