U.S. bond markets may likely see some ripple effects emerging from faraway Japan following the weekend's political developments. Japan's ruling Liberal Democratic Party elected Sanae Takaichi as its new leader, making her the first woman to head the party - and potentially the country's first female prime minister.

Given Takaichi's credentials as a pro-stimulus leader, the yen weakened above the 150 level against the dollar for the first time in two months, and the yield on the 10-year Japanese Government Bond (JGB) climbed to a 17-year high. Goldman Sachs analysts expect the overseas bond markets to move higher in tandem, according to a Bloomberg report.

In a note published on Oct. 5, Goldman Sachs strategists, led by Bill Zu, said for every 10 basis-point“idiosyncratic JGB shock,” yields on the U.S., German, and U.K. bonds could rise by two to three points. According to Investing data, the 10-year JGB yield rose 0.020 of a percentage point to 1.679%.

At last check, the U.S. 10-year Treasury note yielded 4.154%, up 3.5 basis points, despite the government shutdown extending to its sixth day and recent data points signaling economic softness, particularly in the labor market.

The U.S. stock market has been rising to record levels due to expectations that the Federal Reserve, which resumed rate cuts in September, would make additional cuts this year and into early 2026. Rising Japanese bond yields, therefore, raise concerns about the longer-dated U.S. notes as the government seeks to increase borrowing and inflation remains sticky.

The SPDR S & P 500 ETF (SPY), an exchange-traded fund (ETF) that tracks the S & P 500 Index, and the Invesco QQQ Trust (QQQ) have risen 15.2% and 18.4%, respectively, for the year. On Stocktwits, retail sentiment toward the SPY and QQQ ETFs was both 'bearish' by early Monday, while the message volume on both streams was at 'high' levels. The iShares MSCI Japan ETF (EWJ) has advanced nearly 23%.

“Japan has been a net exporter of bearish shocks onto global long-end rates this year,” Goldman strategists said.“We expect the news of Ms. Takaichi's election as LDP President to result in higher long-end JGB yields and a steeper curve.”

How the political landscape shapes up in the Asian nation will determine the extent of sell-off seen in longer-term JGBs, Goldman said. Bond yields and prices move in opposite directions.“The long-end of the JGB curve has been decoupled from its usual cyclical drivers for some time, and increased uncertainty will likely keep long-end risk premia higher for now,” Goldman Strategists said in the report.

Japanese stocks advanced strongly on Monday, driven by hopes of stimulus, with the Nikkei 225 market gauge settling the session up 4.75% at a fresh record.

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