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Why Japanese bonds look 'terrible': Kyle Bass

Hayman Capital's Kyle Bass believes Wall Street's recent declines in the biotech and social media sector, which spread to global stock markets last week, shows cracks in the Japanese economy.

The Japanese Nikkei saw a huge drop last Friday, but the country's benchmark 10-year government bonds did not see yields change as investors fled stocks. Bass, one of the biggest critics of the Japanese economy, has made a big bet on Japan's economy devolving into a debt crisis.

Kyle Bass, founder of Hayman Capital.
Timothy Fadek | Bloomberg | Getty Images
Kyle Bass, founder of Hayman Capital.

During an interview on CNBC's "Squawk on the Street" on Tuesday, the hedge fund manager said questions remain whether Japan will lose control of interest rates or whether the yen can serve as an "escape valve." Bass sees inflation quickly surpassing Japaneses bond yields, he said.

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"The interesting thing in this selloff in the marketplace and in tech ... and this huge selloff in Japanese equities, is that the Japanese bond market hasn't gone anywhere," Bass said. "Yields haven't collapsed, which is fascinating. So their bonds are acting pretty terribly in the environment of their equity market. So we'll see what happens."

—By CNBC's Jeff Morganteen.

Contact World Economy

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