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 However, now that words have been replaced by actions, it appears that someone (cough Japanese institutions cough) has decided the 13.4-sigma swing in JGBs last night is just too much and have rotated to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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THX 1178's picture

Seeking alpha? Howabout Freaking Sigma!

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.

Poor Grogman's picture

We are in an artificial environment thats why gold was dropping

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:



Dr Paul Krugman's picture

Gold is a fear trade.

And oil is transitory.

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.

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?

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...

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:


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


butchee's picture

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

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.


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.

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...



earnyermoney's picture

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



css1971's picture

LOL. Almost as good as MDB.


And soy, wheat, aluminium, copper?

Dr. Kenneth Noisewater's picture

Oil is transitory, but gold is forever!

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.

americanspirit's picture

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

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.

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.



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

Pinto Currency's picture


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

AlaricBalth's picture

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

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.

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.

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."

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.

Dr Paul Krugman's picture

It frees up the banks to loan money to businesses.

McMolotov's picture

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

Dr Paul Krugman's picture

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

McMolotov's picture


resurger's picture


you jest! hahahahahahahaha

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.

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.”


Yen Cross's picture

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

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?

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.

Bunga Bunga's picture

we are in a deflationary environment.

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

Pinto Currency's picture


Never heard the fight deflation part.