Goldman Sachs has indicated that following Sanae Takaichi's election as president of Japan's Liberal Democratic Party (LDP), volatility in Japanese long-term government bonds is rising, with potential impacts extending to bond markets as far as the United States and United Kingdom.

Goldman strategists Bill Zu and his team wrote in a report that Takaichi's assumption of office could drive up Japanese long-term yields. The strategists noted that for every 10 basis points of "Japan-specific JGB shock," they expect approximately 2-3 basis points of upward pressure on yields in the US, Germany, and the UK.

This year, Japanese government bonds have served as a bellwether for global bond markets, with the Asian nation's ultra-long bond yields surging and amplifying market turbulence sparked by concerns over expanding fiscal deficits.

Goldman's warning has intensified market focus on long-term bonds. Long-duration bonds have come under close scrutiny as governments increase borrowing and inflation proves more persistent than anticipated.

Goldman strategists stated: "Japan has been a net exporter of bearish shocks to global long-term rates this year. We expect news of Takaichi's election as LDP president to drive Japanese long-term government bond yields higher and steepen the yield curve."

On October 4th local time, results of the ruling LDP's presidential election were announced, with Sanae Takaichi defeating multiple competitors including Shinjiro Koizumi to successfully win the party leadership. Given the LDP's current position as the largest party in Japan's Diet, Takaichi is expected to become Japan's first female Prime Minister in the upcoming parliamentary vote in the coming days.

Takaichi advocates for fiscal expansion and right-leaning political positions, and is viewed as a protégé of the late Prime Minister Shinzo Abe. She has called for maintaining loose monetary policy and believes the Bank of Japan should not raise interest rates.

As traders bet that Takaichi's pro-stimulus stance could prompt Japanese authorities to issue more government bonds to fund household tax cuts and economic stimulus, Japanese 40-year government bond yields surged 14 basis points on Monday. US and New Zealand sovereign bond benchmark yields rose 2-3 basis points, while Canadian and German bond futures declined.

Goldman strategists wrote in their report that whether a fresh round of selling in long-term bonds continues will depend on political developments. Additionally, a 30-year Japanese government bond auction scheduled for Tuesday may further reveal investor appetite for JGBs.

Markets Live strategist Garfield Reynolds commented: "The movement in 40-year bonds shows investor concerns that Takaichi's pro-stimulus stance will reignite market worries about debt issuance."

Goldman strategists noted: "The long end of the JGB yield curve has been decoupled from its usual cyclical drivers for some time, and mounting uncertainty could keep long-term risk premiums elevated in the near term."