Uday Kotak sounds alarm on interest rates: 'Be ready for a roller coaster ride'

Veteran banker Uday Kotak on Wednesday warned of a possible "roller coaster ride" in global interest-rate markets as rising government debt and deficits push up bond yields in Japan and the US.

"Japan's 10 year bond crosses 3% and US 4.8%. As their government debt and deficits go up, central banks may have no option but to expand balance sheets (print money)," Kotak posted on X.

“If so, inflation goes up, short end rates go up. Be ready for a roller coaster ride in interest rate markets!” he added.

The sharp rise in global bond yields reflects growing investor concerns over inflation, government finances and the prospect of interest rates staying higher for longer.

In Japan, the 10-year yield has more than tripled in two years and is being driven higher by concerns over inflation, the country's fiscal health and expectations that the Bank of Japan may need to accelerate interest-rate hikes.

Yields have also risen sharply at the shorter end of the Japanese government bond curve.

The five-year yield touched a record 2.265%, while the two-year yield reached a 31-year high of 1.81% as markets priced in a near certainty of a BOJ rate hike at its meeting this month.

Inflationary pressures, along with the yen languishing near a four-decade low, have increased pressure on the BOJ to raise rates faster.

Japan's heavy debt burden makes the rise in borrowing costs particularly sensitive for its public finances.

The bond sell-off has intensified in recent days amid reports that Japan's ministries and agencies are likely to submit their largest-ever initial budget requests for the next fiscal year.

In the US, the 10-year Treasury yield rose to around 4.78%, while the two-year yield moved back towards 4.3%.

The 30-year Treasury yield also crossed 5.3%, pointing to expectations of higher borrowing costs and interest rates remaining elevated for longer.