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World's Biggest Retirement Fund Considers Selling Its Japanese Bonds

Tyler Durden's picture





 

While in the past 3 months both the USDJPY and the Nikkei index have soared on the same vague mix of promises (than can never be delivered), and threats (by central bankers, which work only as long as they remain purely abstract and are not acted upon), one security that has barely budged are Japanese bonds: without doubt the fulcrum security that will put a premature end to Abe's latest attempt to reflate an economy, whose total debt is a ridiculous 2000% of annual public revenues, and which will spend half of its annual tax income on interest expense if rates merely double from their record low levels. Until now: Bloomberg reports that Japan's Government Pension Investment Fund: the largest retirement fund in the world overseeing 108 trillion yen ($1.16 trillion), and historically the biggest buyer of Japanese bonds, "will begin talks in April about whether to reduce its 67% allocation to domestic bonds." Read: sell, which may be why we have already seen a rather steep move across the JGB complex overnight, because one the largest player in the space moves, everyone else follows as nobody wants to be the last seller left.

And once the selling begins, logically so does the countdown to the end of Japan's latest reflation attempt, as like it or not, Japan can not afford rising rates, no matter how high it blows the stock market bubble (which by the way is unchanged in non-yen terms), as the alternative is a full blown banking sector crisis, coupled with a public funding crisis.

And also because this time is no different from all the other times Japan has done just this. Only on no previous occasions did Japan have some JPY1 quadrillion in public debt, or nearly 250% in debt/GDP.

From Bloomberg:

The GPIF, as the fund created in 2006 is known, didn’t alter the structure of its holdings during the worst global financial crisis in 80 years or in response to the 2011 earthquake and nuclear disaster. Talks to shift its positions come as Prime Minister Shinzo Abe and the Bank of Japan pledge to restore economic growth and spur inflation, which will mean higher interest rates, Mitani said.

 

If we think about the future and if interest rates go up, then 67 percent in bonds does look harsh,” Mitani, who was an executive director at the Bank of Japan when it bought shares from banks in 2002, said. “We will review this soon. We will begin discussions for this in April-to-May. Any changes to our portfolio could begin at the end of the next fiscal year.”

 

GPIF, one of the biggest buyers of Japanese government bonds, held 69.3 trillion yen, or 64 percent of total assets, in domestic bonds at the end of September, according to its latest quarterly financial statement. That compares with 12 trillion yen, or 11 percent, in Japanese stocks. The asset manager had 9.6 trillion yen, or 9 percent of its portfolio, in foreign bonds and 12.6 trillion yen, or 12 percent, in overseas stocks.

This is a tectonic shift for an asset allocator who has been steadfast in what it buys:

GPIF is the biggest pension fund in the world by assets under management, according to the Towers Watson Global 300 survey in August, followed by Norway’s government pension fund.

 

The portfolio structure has been broadly unchanged since 2006 when it was formulated with an outlook for consumer prices to rise 1 percent annually. Instead, they have fallen.

 

“The portfolio was based on a prerequisite of things such as long-term interest rates at 3 percent on average for the next 100 years,” Mitani said. “Whether this is good will be a possible point of discussion.”

Good luck with that because momentum plays and chasing "hot money flows" always, without fail, end up with a Hollywood ending. As for the "100 year forecast" confusion, it stems from the glaring contradiction that is debt monetization by the BOJ coupled with a government mandate to crush the Yen. The fear is that at least for the time being, if not in the long-term, the latter will overtake the former.

JGBs were how we made money over the past 10 years,” Mitani said. “The BOJ said that they are increasing buying bonds, but they’re also putting power into lowering interest rates. If the economy gets better, then long-term interest rates like a 10-year yield at less than 1 percent are unlikely.”

Yet where the real comedy is about to begin is that instead of investing people's retirement money in at least modestly safe securities which the BOJ openly monetizes, the GPIF will focus on some riskier assets: "The fund may increase holdings in emerging market stocks and is evaluating alternative assets, he said." Good luck with the former: Japan will be only some 10 years behind the curve. As for "alternative assets", if this includes gold, prepare for liftoff as all other retirement fund managers across the world, who have a blended allocation to gold somewhere between 0% and 0.5%, piggyback on Japan's example.

At the end of the day, however, none of the above matters. Japan's Yen will fall a little more, its equities will rise, but all that matters is when and if the bond tumbles. Once that happens, and once Japan's leaders take a look at the chart below, first presented in "Japan's WTF Chart", everything will be quickly put back in its original place, Abe will be "retired", and this latest experiment in ending Japan's self-sustaining three decade long liquidity trap will be promptly forgotten.

 


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Sun, 02/03/2013 - 23:27 | Link to Comment NoWayJose
NoWayJose's picture

No worry. Ben will buy 'em.

Mon, 02/04/2013 - 00:00 | Link to Comment FEDbuster
FEDbuster's picture

Looking forward to the "Kyle Bass was right" Youtube video.

Sun, 02/03/2013 - 23:51 | Link to Comment Peter Pan
Peter Pan's picture

Why can't the Japanese government buy them instead? Isn't that what Ben does already with US Bonds?

Mon, 02/04/2013 - 00:00 | Link to Comment FEDbuster
FEDbuster's picture

BOJ already does buy .gov bonds. Now they will have to buy more, just like the Bernak.

Mon, 02/04/2013 - 00:54 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

"Looking forward to the "Kyle Bass was right" Youtube video."

 

Those will be wonderful.  Also looking forward to the MSM nobody could have predicted this; one-in-billion-years event!

Mon, 02/04/2013 - 03:35 | Link to Comment bobthehorse
bobthehorse's picture

Japanese bonds?

Are you kidding me?

I've got your Japanese bonds.

I've got em right between my legs.

Assholes.

http://www.angrysinner.blogspot.kr/2013/02/yesterday-i-hiked-ten-miles-through.html

Sun, 02/03/2013 - 23:28 | Link to Comment Fidel Sarcastro
Fidel Sarcastro's picture

Uhhhhh, sounds bullish - right?????

Sun, 02/03/2013 - 23:39 | Link to Comment ZerOhead
ZerOhead's picture

Running of the bulls-ish actually.

Best to get out of Tokyo before the thundering herds arrive...

Sun, 02/03/2013 - 23:30 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Last one out of Japan please turn out the lights.

Sun, 02/03/2013 - 23:39 | Link to Comment Manthong
Manthong's picture

..and last one out, please remember to reclaim your tanto from the coat check lady.

Sun, 02/03/2013 - 23:41 | Link to Comment ZerOhead
ZerOhead's picture

After you clean up the Fukushima 4 spent fuel pond please and thank-you...

Mon, 02/04/2013 - 01:58 | Link to Comment Rick64
Rick64's picture

Sounds like that game called Hot Potato.

Sun, 02/03/2013 - 23:32 | Link to Comment Yen Cross
Yen Cross's picture

Short JGBs'

Mon, 02/04/2013 - 00:01 | Link to Comment TotalCarp
TotalCarp's picture

That doesnt take a genius, question is what yen does once rates start to go...

Sun, 02/03/2013 - 23:33 | Link to Comment StockProdigy
StockProdigy's picture

House of cards.

Mon, 02/04/2013 - 08:51 | Link to Comment goldenbuddha454
goldenbuddha454's picture

Doesn't she sing that song "Brass in Pocket"?

Sun, 02/03/2013 - 23:37 | Link to Comment jonjon831983
jonjon831983's picture

Maybe some other pension funds would like to sell stuff: "Pension funds sue Blackrock, allege "looting" at iShares"

http://www.reuters.com/article/2013/02/03/us-blackrock-lawsuit-ishares-i...

 

"Laborers' Local 265 Pension Fund of Cincinnati and the Plumbers and Pipefitters Local No. 572 Pension Fund of Nashville allege that several iShares ETFs spent funds on "grossly excessive compensation" to agents affiliated with the ETFs, as well as on other agents, and they want to recover the funds for investors."

Sun, 02/03/2013 - 23:46 | Link to Comment Seer
Seer's picture

I'm thinking that the punchbowl is gone...

Mon, 02/04/2013 - 06:05 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Blackrock with US $3.7 trillion under management, some of it for America's top oligarch families, quite owns the bribe-taking US federal judiciary, judges who are the servants of those families

While the plumbers and pipefitters think it is like some Hollywood movie in the US courts, ha!

Tho the lawyers will certainly be glad to take their pension money

Sun, 02/03/2013 - 23:34 | Link to Comment Yen Cross
Yen Cross's picture

 That fucktard "Abe" has his head so far up his Fukishima ass!

Sun, 02/03/2013 - 23:38 | Link to Comment Yen Cross
Yen Cross's picture

 USD /risk ?   The yen is declining as we post. The $ was yoked last week. \

 The yen is heavy. Really heavy!

Sun, 02/03/2013 - 23:38 | Link to Comment q99x2
q99x2's picture

Bernanke will buy that shit up like a lap dog. 1.16 tril no problem.

Sun, 02/03/2013 - 23:54 | Link to Comment Being Free
Being Free's picture

Holy fuck, Ben gets laid.  Chicks just love big guys with big JGB positions.

Sun, 02/03/2013 - 23:38 | Link to Comment Never One Roach
Sun, 02/03/2013 - 23:40 | Link to Comment Seer
Seer's picture

Is this the Japanese people selling themselves out?  Are they saying that they don't have a bright future?

I'm thinking that this marks the end.  We can stop talking about lost decades and start talking about a civilizations that's soon to be lost?

Sun, 02/03/2013 - 23:45 | Link to Comment Spigot
Spigot's picture

Someone is having CASH FLOW PROBLEMS!

Interestingly coincidental with half the lights going out at the Superbowl...

Sun, 02/03/2013 - 23:49 | Link to Comment neutrinoman
neutrinoman's picture

The yen isn't going to fall gently -- it will take the large initial brunt of this implosion. The bond implosion will be slower, albeit inexorable, and climax later.

Sun, 02/03/2013 - 23:58 | Link to Comment hairball48
hairball48's picture

Anyone know if Kyle Bass is still short JGBs?

Mon, 02/04/2013 - 00:56 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

yes, he sure is.  Youtube "Americatalyst 2012". 

Mon, 02/04/2013 - 01:08 | Link to Comment Triple A
Triple A's picture

the party won't end until the first one walks out the door, but no one wants to take the first step. please someone.... anyone.... this is getting ridiculous.

Sun, 02/03/2013 - 23:59 | Link to Comment Bear
Bear's picture

All the other CB's have been effective in mummbling, it's Japan's turn

Mon, 02/04/2013 - 00:13 | Link to Comment hawk nation
hawk nation's picture

Kyle Bass better have good security since i think the central bankers will not tolerate anyone telling the truth about their schemes

Mon, 02/04/2013 - 03:13 | Link to Comment Non Passaran
Non Passaran's picture

Of course, look how they assassinated Ron Paul!

Mon, 02/04/2013 - 06:16 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

In many ways, they did assassinate him, with the media control preventing his wider popularity

But Ron Paul with his 'work within the system' approach was also useful to the oligarchs, unwittingly or not ... To them he was a 'heat sink' for all the 'Liberty Movement' and similar dissident Americans

The 'fight the Fed' meme is too complex to reach most Americans' comprehension, so it is allowed and encouraged

Certainly there are other US Congresspeople and government figures who turned up recently murdered and dead after too-sharply investigating or acting on some corruption issues

Sonny Bono, the singer of Sonny & Cher ... Sonny Bono became a US Congressman on the key House Judiciary Committee with the ability to investigate corruption at America's highest levels

Sonny Bono was murdered in 1998 doing exactly that ... media cover-up claimed it was a 'ski accident' and that excellent skier Sonny went head-on into a tree and died ... totally bogus, even ex-FBI people say it was a murder

US Senator Paul Wellstone in 2002, after leading opposition the US Iraq War ... 'accident' ... a warning to others

US Congressman Wayne Owens 2002, found dead in Israel while investigating the triangle of Israeli-Palestinian Authority-US corruption ... 'unsolved'

Or US Federal Judge John Roll shot dead in Arizona in 2011 shortly after ruling against Obama and the US gov't ... drugged up 'lone gunman' promptly supplied, 'confessing' and otherwise barely seen

Mon, 02/04/2013 - 08:58 | Link to Comment goldenbuddha454
goldenbuddha454's picture

 Ron Paul, Bill Gross, Mark Faber, Peter Schiff, Nouriel Roubini to name just a few are higher up on the totem pole.  Kyle Bass is "Johnny-come-lately" in the world of anti-fed zealots.  I think Kyle is pretty safe compared to some of the others.

Mon, 02/04/2013 - 00:21 | Link to Comment cornflakesdisease
cornflakesdisease's picture

Well, my inside man who just about bats 100% warned me about two weeks ago that Japan may fall apart by this winter.  If they want 2% inflation, which translates into 3% interest; they are toast.  They can barely service their debt at 0%.  In fact Japan spends about 25% of their budget on interest on national debt.  But hey, let's take it up to 300% of GDP.  3.5% = 50% of their budget on interest.  Ouch.  Interesting to see who these governments deal with this.

Mon, 02/04/2013 - 02:48 | Link to Comment Spigot
Spigot's picture

With the BOJ as enabler (such as the FED "buying" US bonds totalling 100% of US.gov annual deficit issuance), and buyer of last resort, they could (as we) essentially keep "interest" rates at zero and simply print the money to force that money into the markets to "create" their inflation figure.

IMO they tried to export their way out of their credit/debt implosion (1989), but China swallowed the export market underneath them.

Now (IMO) the G7/8 have decided that "controlled" and co-ordinated money printing is their only option. Pump up the money supply, let inflation plump up the GDP vs total debt so that they get the TotalDebt/GDP figures of the world back down to 100% +/- . Japan had to sign on to that, as they all did, in order to co-ordinate a synchronized fiat currency devaluation via money printing.

That is my read.

Mon, 02/04/2013 - 03:18 | Link to Comment Non Passaran
Non Passaran's picture

I agree. This farce can go on for a long while.
Ben proved it. A very successful central banker, by that criterion.

Mon, 02/04/2013 - 06:21 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Yes, there was a good technical analysis about Japan about a year ago or so on ZeroHedge, have not been able to find the link

But they went through all these 'Japan will blow up' scenarios, and their conclusion was that, contrary to Kyle Bass,  Japan could continue to float the game till at least 2018, maybe 2020, using all the clever tricks still available

And by then of course a lot of the rest of the world might blow up before Japan does

Mon, 02/04/2013 - 08:12 | Link to Comment Spigot
Spigot's picture

IMO the biggest, darkest, deepest hole out in the pitch black night of financial anti-transparency, is derivatives. Somewhere, somehow, something will go "bump", which will knock in to 10 others somethings and it will end up like a nuclear chain reaction in about 2-4 hours.

Mon, 02/04/2013 - 17:30 | Link to Comment Tursas
Tursas's picture

Have you ever checked the other side on their balance sheet?  Remember to sit down before you do venture there!

Mon, 02/04/2013 - 00:24 | Link to Comment W T Effington
W T Effington's picture

I am a bit confused by Tylers commentary. Tyler argues that they will need to abandon the reflation policy in order to keep rates low. I think it may be just the opposite. The only way in my view that they will be able to keep rates low temporarily is if they monetize the debt. When people start selling JGB's who is going to buy them up. Rates will rise and the Japanese government will have to print to fight it. Either they let their bond market die - or they kill the currency, buy their own debt, and postpone the bond market death. I imagine they will kill the currency first which will buy them some time on the government bond collapse. We all know that governments love to pretend and extend. Preserve the status quo as long as possible. Either way, they are fucked. They cant abandon the refaltion policy. Thats the only thing that will hold up the bond market. Am I missing something that Tyler is seeing?

Mon, 02/04/2013 - 00:29 | Link to Comment chindit13
chindit13's picture

Yes, I think Kyle Bass is short, so him being a natural buyer, the pension fund might want to invite him to Tokyo to make the rounds of Ginza and Roppongi.  A little good will can't hurt.  He might also bring some of his nickels and spend some time in a Pachinko parlor.  Bottom line is he has to cover his shorts sometime, and doing it while one can still get paid might justify leaving something on the table.

Ira shai ma se, Kyle-sama

Mon, 02/04/2013 - 01:54 | Link to Comment Rick64
Rick64's picture

Had some good times in Roppongi.

Mon, 02/04/2013 - 00:31 | Link to Comment fukidontknow
fukidontknow's picture

Abe wants to head hunt in Iran.

Mon, 02/04/2013 - 00:36 | Link to Comment mendigo
mendigo's picture

So large financial operations become the enemy of the state. Could be interesting.

Mon, 02/04/2013 - 01:07 | Link to Comment Colonel Klink
Colonel Klink's picture

Tick tock bitchez!

Eventually people will wake up to the alarm.

Mon, 02/04/2013 - 01:15 | Link to Comment rehypothecator
rehypothecator's picture

I have this recurring nightmare that one day, they checked inside the vaults, and to their horror they discovered all the bonds were missing, and had been replaced with IOUs.  

Mon, 02/04/2013 - 01:44 | Link to Comment Poor Grogman
Poor Grogman's picture

This govt debt has been about to blow apart for decades.

And Yet...

Japan survives the worst nuclear accident ever and, a tsunami, as well as having china breathing down their neck, as well as having no natural resources/hydrocarbons, and still they limp along.

Now ask yourself who is paying for this ( right now) ?

My answer is that the R/E debt holders with underwater mortgage debt are paying.

Many were paying out loans on grossly underwater property from the boom times. They provide much of the demand for ¥ for loan repayment which the BOJ happily prints into existence by way of Japanese Government spending.

Next to pay will be anyone who has retirement funds in "the system"

Note to self.... Don't be in one of those two groups...

Mon, 02/04/2013 - 02:34 | Link to Comment trader1
trader1's picture

they could also buy other assets with leverage without having to sell JGBs.  this has the same effect of reducing the % of the portfolio allocated to JGBs.

Mon, 02/04/2013 - 04:31 | Link to Comment Dareconomics
Dareconomics's picture

The article is moot. Japan is about to get the inflation that it really wants:

 

http://dareconomics.wordpress.com/2013/02/03/japanese-sovereign-debt-cri...

Mon, 02/04/2013 - 05:51 | Link to Comment resurger
resurger's picture

in the new normal, when you have inflation you lower interest rates.

Best Regards,

Dr. Paul Kruuger

Mon, 02/04/2013 - 17:25 | Link to Comment Tursas
Tursas's picture

The inflation is not in the cards for Japan either, thanks to our GOP.  We employ the whole continental Asia.  No inflation here during the next 100,000+ years - we invent an they...!

Mon, 02/04/2013 - 05:50 | Link to Comment resurger
resurger's picture

Rotation to Equity from Bonds?! Wrong Answer...

GOLD BITCHES! This is serious, i wish the Spanish and the Greek pension funds learn from this as well to allocate more in Gold

The time will come, keep stacking

Mon, 02/04/2013 - 07:11 | Link to Comment sbenard
sbenard's picture

The WSJ just removed a story from its front page regarding the true cost of QEternity -- underfunded corporate pensions! It is now becoming an economic ball and chain on those big corporations that it was intended to benefit!

Here is the headline that I took a screen shot of:

http://4.bp.blogspot.com/-MXNj7QW_T90/UQ-UI7SYlYI/AAAAAAAANaU/Ox1rlOKNt8...

 

Mon, 02/04/2013 - 08:43 | Link to Comment goldenbuddha454
goldenbuddha454's picture

Its simple;  Whatever number comes after a quadrillion is the number of yen Japan needs aim for to assure there is enough cash on hand.

Mon, 02/04/2013 - 09:15 | Link to Comment WmMcK
WmMcK's picture

Quintillion or cotillion?

Mon, 02/04/2013 - 09:50 | Link to Comment tok1
tok1's picture

You have to wounder if he holds 69% in jgb which is close. to 1 trill
USD why would he announce he might adjust 1 year a head ( which would destroy the value of his position)

I think he's doing the opposite .

They bought Spanish / Italian bonds in the heat of
the crisis lady year their up 30% on currency and huge on
the periferial yield drop .

It makes sense for them to unwind .. Look at the price action
Euro weak .. Yen firming .. periferial ie Spanish / Italian bonds selling off
( yields rising)...

He's not running biggest fund in the world by letting everyone front run him.

Watch JGB's they will rally tomorrow he will by JGB with the proceeds as he switchs back and squeeze foreigners ..

Mon, 02/04/2013 - 10:17 | Link to Comment NEOSERF
NEOSERF's picture

There will be a quiet agreement where everyone suddenly decides diversification is good for le stabilitee.  Pension fund will start buying MBS so that Ben can back off the accelerator and in return, he will start offloading the Pension bonds so that the rate stays down.  FIXED...next problem?

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