Will the US 10Y Treasury yield exceed 5.0% at any point before October 2026?
The Condition
BOJ raises policy rate to 1.00% or higher by end of July 2026
Our Ensemble Estimates
Given BOJ reaches 1.00%+: Will the US 10Y Treasury yield exceed 5.0% at any point before October 2026?
Given BOJ stays below 1.00%: Will the US 10Y Treasury yield exceed 5.0% at any point before October 2026?
Causal Effect
BOJ reaching 1.00%+ worth ~6pp increase in probability of UST 10Y exceeding 5% — marginal contribution through deepened hedging cost trap and repatriation pressure, but US-specific factors dominate
Why This Matters
Tests whether aggressive BOJ normalization triggers sufficient Japanese portfolio repatriation to push US Treasury yields above the psychologically significant 5% threshold. The analysis identifies the hedging cost trap as the most consequential structural development: Japanese investors now earn 68bp less on hedged US Treasuries than domestic JGBs, reversing the incentive structure that made Japan the world's largest foreign holder of US Treasuries. BOJ reaching 1.00%+ would deepen this negative carry, potentially accelerating the gravitational pull on Japan's $4T+ foreign bond holdings. JGB yields at 2.24% (and rising) create an increasingly attractive domestic alternative. The FOMC has already flagged elevated hedge fund leverage as an amplification vulnerability.
Resolution Criteria
US Treasury 10-year constant maturity yield (FRED DGS10) closes at or above 5.00% on any trading day from February 22, 2026 through September 30, 2026
Source Analysis
Hedging cost trap activated -- Japanese investors earn 68bp less on hedged USTs than domestic JGBs, reversing structural incentive for $4T+ in foreign bond holdings