Japan's 13 Sigma Bond Swan

Tyler Durden's picture


For six months the Japanese jawboning has seen investors front-running the BoJ, selling JPY and buying whatever risk-asset is the most correlated that day - whether it is the Nikkei 225 or the S&P 500. However, now that words have been replaced by actions, it appears that someone (cough Japanese institutions cough) has decided the 13.4-sigma swing in JGBs last night is just too much and have rotated to US Treasuries. The selling of JPY and buying of EUR (to fund peripheral bond buying) and USD (to fund Treasury buying) is very clear. That means, implicitly, that every ramp higher in JPY (weaker JPY) is simply more bond-buying - which leaves the algos directionless.


If you were a risk-manager, what would you do? And as far as all those VaR risk models - oops!!


It seems the 'sellers' of those JGBs have found a new place to put that capital to work (and in a non-devaluing currency)...


Charts: Bloomberg

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Fri, 04/05/2013 - 14:29 | 3413621 Calidreaming
Calidreaming's picture

I love Sushi

Fri, 04/05/2013 - 14:38 | 3413659 THX 1178
THX 1178's picture

Seeking alpha? Howabout Freaking Sigma!

Fri, 04/05/2013 - 14:45 | 3413685 Dr Paul Krugman
Dr Paul Krugman's picture

It seems the 'sellers' of those JGBs have found a new place to put that capital to work (and in a non-devaluing currency)...

See!  Even Tyler knows that the USD isn't devaluing.

Hint, we are in a deflationary environment.  Thus why the UST yields are dropping.

Fri, 04/05/2013 - 14:55 | 3413715 Poor Grogman
Poor Grogman's picture

We are in an artificial environment thats why gold was dropping

Fri, 04/05/2013 - 14:56 | 3413729 Pinto Currency
Pinto Currency's picture

We are deflating.

Gold at $1600 vs $350 ten years ago.

Oil at $92 vs $30 bbl ten years ago.

and the Constant Commodity Index, let's take a look at that:



Fri, 04/05/2013 - 15:00 | 3413738 Dr Paul Krugman
Dr Paul Krugman's picture

Gold is a fear trade.

And oil is transitory.

Fri, 04/05/2013 - 15:03 | 3413748 Poor Grogman
Poor Grogman's picture

Oil is indeed transitory, on that we can agree...


That Gold is a fear trade  is also  true. Fear of being robbed by .GOV that is.

Fri, 04/05/2013 - 15:03 | 3413753 Pinto Currency
Pinto Currency's picture

And how about the other CCI components?:

Natural gas, wheat, corn, soybeans, copper, cotton, live cattle, lean hogs, coffee, cocoa, sugar, orange juice, silver, platinum?

Fri, 04/05/2013 - 15:09 | 3413772 Panafrican Funk...
Panafrican Funktron Robot's picture


Fri, 04/05/2013 - 15:23 | 3413794 ZerOhead
ZerOhead's picture

Just a silly question here... but what about all of those hundreds of trillions in currency and interest rate swaps back at the unregulated TBTF casino?

Could be some very big winners and some very big losers coming out of these seismic shifts if everyone hasn't netted out exposure properly...

Fri, 04/05/2013 - 22:07 | 3415236 markmotive
markmotive's picture

These policies is less likely to work in our era.

Niall Ferguson on the death of Keynesianism in Japan and around the world:


Fri, 04/05/2013 - 15:14 | 3413798 Pinto Currency
Pinto Currency's picture



Transitory like the $12 trillion added to c.b. balance sheets.

Transitory like the M1, M2, M3 money stocks that have shot through the roof


Fri, 04/05/2013 - 19:54 | 3414822 butchee
butchee's picture

Thirteen, fourteen.....whatever it takes.

Sat, 04/06/2013 - 13:11 | 3416398 Pinto Currency
Pinto Currency's picture


The banks are printing like mad to fight the deflation of their debt/bond bubble.  Every thing else is inflating:

The balance sheets of 8 central banks combined.


Fri, 04/05/2013 - 15:12 | 3413783 Poor Grogman
Poor Grogman's picture

Bigger picture required

Fri, 04/05/2013 - 15:16 | 3413801 McMolotov
McMolotov's picture

Biflation, bitchez. The stuff you need (like food) costs more; the stuff you already own (like a house) or don't want/can't afford (like a yacht) costs less.

Fri, 04/05/2013 - 17:10 | 3414304 Random_Robert
Random_Robert's picture

Yachts cost less now...?

Fuck yeah, bitchez- I know what I'm having for lunch- yacht sandwich with a side order of iPad...



Fri, 04/05/2013 - 15:03 | 3413751 Pinto Currency
Pinto Currency's picture


Fri, 04/05/2013 - 15:11 | 3413780 earnyermoney
earnyermoney's picture

More like a protest trade against the fascist elite running the circus.



Fri, 04/05/2013 - 15:25 | 3413841 css1971
css1971's picture

LOL. Almost as good as MDB.


And soy, wheat, aluminium, copper?

Fri, 04/05/2013 - 15:36 | 3413888 Dr. Kenneth Noi...
Dr. Kenneth Noisewater's picture

Oil is transitory, but gold is forever!

Fri, 04/05/2013 - 15:47 | 3413940 Kirk2NCC1701
Kirk2NCC1701's picture

Krugman:  "Gold is a fear trade.  And oil is transitory."

It's more honest to say:  "The MIC is the fear trade.  And life and peace are transitory." 

And gold is the mistrust & mitigation trade.  Since we're into dropping all pretensions.

Fri, 04/05/2013 - 17:08 | 3414291 americanspirit
americanspirit's picture

If you actually are Dr. Krugman you really should consider the self-preservation value of keeping your idiot mouth shut.

Fri, 04/05/2013 - 21:01 | 3415015 Overfed
Overfed's picture

How about groceries, building materials, car parts and maintenance supplies, tires, household items, cleaning supplies, garden supplies, and durable goods in general? Deflation, my fucking ass.

The only things deflating are my property values, and take home pay.

Sat, 04/06/2013 - 10:08 | 3415043 WhiteNight123129
WhiteNight123129's picture

The only thing transitory is the purchasing power of the dollar....

As for why central bank will fail.


Central bankers have read keynes and know how expectations are important and how managing expectations of the market is important. Now market participants have read keynes too and know how expectations are important and how central bankers are trying to manage expectation.

Do you rationally believe that market participants are going to ignore that when they listent to central bankers. Are we supposed to have read Keynes and now let our expectations get managed when we know the Central bankers are trying to manage our expectations?


Central bankers are supposed to have credibility, it is very important. Ok, how do we reconcile this with point 1 which is that we know that central bankers are trying to manage our expectations??? (telling bullshit for our own´s sake.)

The only thing that transpires from this concept is arrogance, which will result in EPIC FAIL because market participant see right through it.


During the subprime crisis a lot of people in the hedge fund community knew that the thing would blow up, but nobody at the Fed or IMF was smelling the coffee. A lot of guys bought some credit derivatives and in the end the gov and teh Fed had to pony up money to pay those guys. Who is managing the expectation of who? I guess the hedge fund guys are managing the expectations of the Fed instead.



Fri, 04/05/2013 - 14:59 | 3413731 AlaricBalth
AlaricBalth's picture

"The age of financial globalisation has brought us to the verge of this second extreme. The extraordinary growth of financial activity has far outstripped the growth of real economies, leading to the accumulation of financial assets that are largely the liabilities - i.e. the debts - of countries, banks, corporations. The markets are telling us now that this process has gone too far and that a “deleveraging” - i.e. a reduction of the indebtedness - is now required by all debtors, public and private.

The world economy is, in other words, confronted with a “global Triffin dilemma” in which the excessive indebtedness of the issuers of financial assets is now affecting the value of the assets themselves; of all assets, not just of reserve currencies, as in the early Triffin dilemma.

But, how is it possible to carry out this huge process of deleveraging in an orderly manner and without further destabilizing the world economy?

The obvious answer is that it may take time and in any case a longer period of time than that financial markets, suddenly become aware of the unsustainability of the situation, seem willing to concede."

Fabrizio Saccomanni
BIS Working Papers
No 399
Global Safe Assets

Fri, 04/05/2013 - 14:59 | 3413741 Pinto Currency
Pinto Currency's picture


And the BIS was at the center of policies that led to the current debt bubble.

Fri, 04/05/2013 - 15:08 | 3413763 AlaricBalth
AlaricBalth's picture

Actually it was Saccomanni's response/rebuttal to the following paper.

Fri, 04/05/2013 - 15:36 | 3413886 Pinto Currency
Pinto Currency's picture


Fair enough but the BIS has been at the epicenter of gold and interest market rigging now for decades and these concerned analyses are a distratction from what they've been doing.

Fri, 04/05/2013 - 14:55 | 3413724 Pinto Currency
Pinto Currency's picture



Fri, 04/05/2013 - 15:01 | 3413732 Dr Paul Krugman
Dr Paul Krugman's picture


Fri, 04/05/2013 - 15:03 | 3413754 ParkAveFlasher
ParkAveFlasher's picture


Christ this is fun.  +1 Tylers.  Can Banzai dress his head up like a pinata?  No no wait, it's fine, just leave it as is.

Fri, 04/05/2013 - 15:09 | 3413778 debtor of last ...
debtor of last resort's picture

To Hong Kong?

Fri, 04/05/2013 - 15:11 | 3413784 SpiceMustFlow
SpiceMustFlow's picture

I cannot wait to hear the real you spouting your bullshit on MSM when Japan truly hits the windshield.

"Well you see the problem [insert random douchebag here] was that Abe and Kuroda just didn't go far enough."

Fri, 04/05/2013 - 15:03 | 3413750 slightlyskeptical
slightlyskeptical's picture

I agree with you. But how is buyimng MBS from the banks helping us out of this deflationary enviroment? More debt but less money chasing goods is not what we need. Tell your masters to skip the banks and just refinance straight with the people.

Fri, 04/05/2013 - 15:17 | 3413809 Dr Paul Krugman
Dr Paul Krugman's picture

It frees up the banks to loan money to businesses.

Fri, 04/05/2013 - 15:27 | 3413854 McMolotov
McMolotov's picture

You mean it frees up banks to buy stocks, right?

Fri, 04/05/2013 - 15:45 | 3413932 Dr Paul Krugman
Dr Paul Krugman's picture

Prop desks were done away with by the Dodd-Frank Act.

Fri, 04/05/2013 - 15:59 | 3413960 Pinto Currency
Pinto Currency's picture

Total US debt at $56 trillion:


We need more debt.

Fri, 04/05/2013 - 15:57 | 3413979 McMolotov
McMolotov's picture


Fri, 04/05/2013 - 17:32 | 3414375 resurger
resurger's picture


you jest! hahahahahahahaha

Fri, 04/05/2013 - 16:10 | 3414004 eatthebanksters
eatthebanksters's picture

Dodd Frank is a bust....and there is no money flowing to Main Street.  The government can't stimulate consumption.  It's so inneficient it can't add value to anything, quite the opposite, which requires continual additional subsidies from the taxpayer.  It's an ugly downward spiral of no return.  Secondly, TBTF banks are so big and need so much cash to operate and provide returns to shareholders, the only way they can get it in a stagnant economy is by performing outright manipulation and participating in risky investments.  What you have here is a volatile mixture of stupidity and greed and you are part of the equation Dr. Krugman.  When the shit blows up I want to see the look on your face when the uneducated masses come to get you and 'thank' you for all your thoughts and influence on furthering a busted economic and social agenda.

Fri, 04/05/2013 - 20:55 | 3414986 WhiteNight123129
WhiteNight123129's picture

Dear Fake Dr Krugman, let me educate you on Gold.

John Fullarton:

The amount of hoards is not governed by the state of prices, but by the market-rate of (real) interest, which however it may be essentially identified with the rate of profits on capital, it is well known rises and falls in the first instance with every contraction and expansion of the medium through whose agency capital is distributed, where that be money or credit.”


Now about fear aspect, you are partly correct.

John Fullarton

“No person who has ever resided in an Asiatic country, where hoarding is carried on to a far larger extent in proportion of the existing stock of wealth, and where the practice has become much more deeply engrafted in the habits of the people, by traditiuonary apprehension of insecurity and hte difficulty of finding safe and remunarative investments, than in any European commonudity, no person who has had personal experience of this state of society, can be at a loss to recollect innumerable instances of large mettalic treasures extracted in times of pecuniary difficulty from the cofferes of individuals, by the temptation of high rate of interest, and brough in aid of the public necessities, nor, on the other hand, of the facility with which those treasures have been absorbed again, when the inducements which had drawn them into light were no longer in operation.”


Fri, 04/05/2013 - 19:43 | 3414781 Yen Cross
Yen Cross's picture

 McMolotov 1000.01% right.  Does anyone listen to EKM? The primary dealer > toss-A-cross< ?  

Fri, 04/05/2013 - 15:53 | 3413965 Kirk2NCC1701
Kirk2NCC1701's picture

Dr. PK: "It frees up the banks to loan money to businesses."

It turns out that this is not quite accurate either, unless you're talking about the TBTF banks.  If a small business wanted to buy rental property -- even with 50% down -- it turns out, you can NOT get a mortgage.  Comments?

Fri, 04/05/2013 - 18:37 | 3414550 xtop23
xtop23's picture

Velocity is in vaporlock.

The banks are too busy bolstering capital reserves or flipping treasuries. They are preparing for a collapse that they know is imminent.

They are too preoccupied with the above exploits to bother loaning to start ups or finance expansion in existing businesses.

Try again.

Fri, 04/05/2013 - 15:05 | 3413759 earnyermoney
earnyermoney's picture



Fri, 04/05/2013 - 15:12 | 3413787 Bunga Bunga
Bunga Bunga's picture

we are in a deflationary environment.

Didn't Bernanke always boast he has the ultimate tool to fight deflation?

Fri, 04/05/2013 - 15:17 | 3413814 Pinto Currency
Pinto Currency's picture


Never heard the fight deflation part.

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