Japanese government bonds have sold off sharply this week, with the 10-year yield rising above 3% for the first time since 1996. The move reflects growing concerns over inflation and Japan’s fiscal outlook, but could also have wider implications for global markets.

After decades of ultra-low interest rates, the Bank of Japan has gradually tightened monetary policy, with its policy rate now at 1%. However, persistent inflation and continued weakness in the yen have increased expectations that the BoJ may need to raise rates more quickly. At the same time, Prime Minister Sanae Takaichi’s plans for greater government spending have added to concerns over Japan’s fiscal position.

One important risk is the yen carry trade. Investors have historically borrowed cheaply in yen and invested the proceeds in higher-yielding assets elsewhere such as the Mexican Peso. Higher Japanese rates reduce the attractiveness of this strategy and could lead investors to unwind positions, potentially creating volatility across global markets.

There could also be implications for US Treasuries. Japan is the largest foreign holder of US government debt, owning more than $1tn. As Japanese bond yields become more attractive, domestic investors such as pension funds and insurers may have greater incentive to move capital back towards Japan. While there is little evidence of significant repatriation so far, a sustained rise in Japanese yields could reduce demand for US Treasuries, putting further upward pressure on US borrowing costs.

- George Tyson

Large US university endowments are on course to match or outperform the S&P 500 after years of lagging behind public markets, as early investments in companies such as SpaceX and leading artificial intelligence groups generate substantial gains. The reversal is striking: endowments with more than $5bn returned an annualised 7.8% over the three years to June 2025, compared with 19.7% for the S&P 500. This year, however, exposure to a small group of highly successful private companies has transformed performance.

The turnaround reflects the unusual concentration of this year’s technology boom. Harvard’s endowment held approximately $2.2bn of SpaceX shares at the end of June, while the University of North Carolina’s investment in the rocket company represented around 10% of its nearly $15bn portfolio. UNC’s returns exceeded 30% over the year, while the University of Colorado Foundation returned 20.3%, helped by a SpaceX investment dating back to 2009 that had increased 57-fold. Rising valuations of AI companies such as OpenAI and Anthropic have provided further gains for institutions that invested early.

Yet the rebound also exposes the risks of relying on a handful of private-market winners. Private equity allocations had previously hurt endowments as valuations fell after the 2021 boom, while weak IPO and acquisition activity restricted distributions and liquidity. Although exits have now accelerated, US venture capital exit value reached $347bn in the first quarter only because the five largest transactions accounted for most of the increase. For endowments, therefore, this year's exceptional performance demonstrates both the rewards of patient private-market investing and the danger of concentrated exposure. The challenge will be identifying the next SpaceX before the current winners fade.

- Muthu Ramanathan

Japan's mergers and acquisitions market notched its strongest first half on record in 2026, even as the number of deals struck fell, highlighting a decisive shift toward fewer, much larger transactions.

Total M&A value in Japan climbed 28% year-on-year to an all-time high of ¥46.36 trillion ($294 billion) in the six months to June, according to Bloomberg-compiled data, while the number of transactions dropped 10% to 2,315 over the same period.

The divergence points to a wave of outsized deals rather than broader dealmaking momentum. Among the contributors was SoftBank Group's role in leading OpenAI's $122 billion funding round, one of several mega-transactions that lifted the half-year total.

The record also reflects the continued reshaping of corporate Japan under governance reform. Guidance from Japan's Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange's focus on cost-of-capital disclosure is encouraging corporates to divest non-core assets and simplify group structures. At the same time, sustained pressure from activist investors has pushed a growing number of listed companies to delist altogether through take-private transactions.

Private equity firms, once dismissed by Japanese boards as opportunistic outsiders, are now increasingly welcomed as strategic partners in this process, backing management teams seeking room to restructure away from the scrutiny of quarterly earnings.

With sponsors and strategic acquirers competing for a narrowing pool of high-quality targets, deal size, rather than deal count, looks set to remain the defining measure of Japan's M&A market for the rest of 2026.

- Saiee Katarkar

1. Large-scale capital mobilisation: In 2021, BofA committed to mobilising $1.5 trillion in sustainable finance by 2030, including $1 trillion for climate projects and $500 billion for social development. By Q1 2026, it had mobilised around $924 billion through lending, capital raising and advisory activity. This demonstrates the scale of sustainable finance BofA can facilitate, although its 2024 exit from the Net-Zero Banking Alliance raises questions about the strength of its broader climate commitment.

2. Targeted community investment: BofA committed $1.25 billion over five years to support health, employment, affordable housing and small businesses. By 2022, more than $420 million had been invested in minority entrepreneurs, businesses and funds, compared with $72 million in philanthropy. This focus on equity investment can strengthen local economies over the long term. However, BofA has since shifted towards broader ‘talent’ and ‘opportunity’ initiatives, including $350 million invested in community development in 2025.

3. Operational footprint and labelled issuance: BofA achieved carbon neutrality across its operations in 2019 by reducing emissions, using renewable electricity and purchasing offsets. It also became the first major bank to issue a green bond in 2013 and later issued a $2 billion Equality Progress Sustainability Bond. These initiatives make its sustainability commitments more tangible and measurable. However, its operational footprint is small relative to financed emissions, making progress towards its 2030 sector targets the more significant test.

Until next time,

The Long and Short

Markets, Made Sense