Recently, it has been mentioned several times that stablecoins and US bonds will form a twin turbocharged engine, with the left foot stepping on the right foot and spiraling upwards. Let's briefly summarize the logic. Demand driven: When the issuance scale of stablecoins expands, more US bonds will be purchased as reserves, increasing US bond buying and lowering yields. Market effect: US Treasuries provide stability for stablecoins, which in turn provide liquidity for the cryptocurrency market, increasing Bitcoin buying and pushing up prices, while indirectly enhancing the attractiveness of US Treasuries. After discussing stablecoins, I would like to further explore the relationship between the old brother pair of Japanese and US bonds. On the day of the quote, it was mentioned that after the Japanese bond auction cooled down, the yield of the US Treasury bond on May 22nd quickly rose to the warning level of 4.6%/5.1%. The decrease in the bid multiple of US Treasury bonds from a six-month average of 2.57 to 2.46 also indicates low market sentiment. Because Japan is the largest holder of US Treasury bonds. If Japanese bond yields continue to rise, Japanese institutions may sell US bonds to adjust their balance sheets, further pushing up US bond yields. The Japanese bond interest rate has roughly gone through three cycles in recent years: After the Plaza Accord in 1985, the depreciation of the US dollar and the appreciation of the Japanese yen led to a long-term downturn in the Japanese economy. In response to deflation, the Bank of Japan significantly reduced interest rates, and Japanese bond yields entered a downward channel from then on. In 2013, after unlimited quantification of Abenomics, YCC continued to decline to 0.2% 3. After the 2021 epidemic, the yield gradually rebounded. Due to the long-term maintenance of low interest rates, many institutions have borrowed a large amount of yen assets in exchange for US dollars to invest in the US bond market to earn interest spreads, but the rise in interest rates has caused liquidity tightening risks. For example, an increase in new bond yields leading to a decrease in old bond prices can result in asset depreciation. If there is a run on a bank similar to Silicon Valley Bank, it will be forced to sell and replenish the margin, but if the pressure rapidly increases in the short term, it may even lead to losses and bankruptcy. The current bond interest rates continue to rise, making bonds issued during the low interest rate period of the past few years relatively cheaper. For old bondholders, they have become old users who are not as good as dogs. These old users will reconfigure their assets, such as choosing to sell old bonds to buy new ones, which will lead to a further decline in the price of old bonds and enter a death spiral. The recent increase in Japanese bond yields is mainly due to the following reasons: 1. The Japanese economy lacks growth points and is not optimistic about future returns, resulting in weak investor demand. 2. Rising inflation expectations 3. Uncertainty in Fiscal Stimulus Expectations 4. Bank of Japan's bond purchases decrease after exiting YCC Since last year, news of rising rice prices in Japan has frequently made headlines in major media outlets, and even the Japanese Prime Minister has stated that he must control rice prices below 4000 yen/5kg, resembling a Japanese style salt and iron monopoly system. Even some media boldly speculate that the rise in rice prices in Japan is due to the loss of the Agricultural and Forestry Central Treasury controlled by the Japan Agricultural Cooperative, which sold rice at high prices to replenish its inventory. Of course, I find this conclusion too shocking and outrageous. But according to the annual report, the net loss of Agricultural and Forestry Bank reached 1.8 trillion yen (approximately 12.6 billion US dollars), setting a record for the largest loss in the institution's century long history. The main reason is that the value of its large holdings of foreign bonds (especially U.S. treasury bond bonds) has shrunk significantly against the background of the continuous rise of interest rates in the United States and Europe. The bank had previously misjudged the trend of interest rates in the United States and Europe, betting on a decline in interest rates, resulting in huge floating losses. Finally, taking the risk of cutting meat, they sold off low yield assets worth 17.3 trillion yen, turning floating losses into actual losses, which to some extent reflects the expectation of future returns continuing to rise. It is precisely because of insufficient external purchasing power and reduced liquidity of low interest funds that the United States has successively promoted stablecoin bills to increase the liquidity supply of US bonds and the Beautiful Bill to raise the debt ceiling (nearly $4 trillion). But interest expenses on US Treasury bonds have reached $1.1 trillion per year, accounting for a quarter of fiscal revenue. Almost $2 trillion in US Treasury bonds mature every month, forcing the US government to issue new debt to repay the old. Although US Treasury bonds will not default, issuing new bonds to repay old ones will continuously increase costs. High interest rate expansion and printing money to purchase bonds will lead to the depreciation of the US dollar, and interest rates and high debt levels may cause costs to spiral out of control. The current bond market risks are accumulating, but at least a 10-year Japanese bond yield of 2% and a 10-year US bond yield of 5% will trigger a crisis. The widely circulated June US Treasury crisis is unlikely to erupt, but rather a means of expectation management used to hedge risk expectations and make the market feel that the economy is not that bad. Today, the Bank of Japan has also taken action to stabilize the upward trend of interest rates.