The Real Japan "Panic" Indicator May Hit At 1pmET

Tyler Durden's picture

The Japanese government bond market has been cataclysmicly volatile in the last few days since the BoJ shifted from words to action - with an average daily range 8-times normal. But, as a rather famous rates desk trader recently noted, if there is a real "Japan Panic" trade, it will make itself evident at 1pm ET today. His reasoning is impeccable. The BoJ has embarked on a program where it will be buying 'more' long-maturity bonds than the government issues (at around $80bn equivalent per month, ad infinitum, in a nation, that we pointed out here, has a GDP that is 40% of the US.) This surge in liquidity, which as is well known across the G-7 is completely fungible (within and across all bank balance sheets), has to leak somewhere, and the 30Y US Treasury bond is now the highest-yielding 'safe asset'. However, the Fed is monetizing vast amounts of US Treasuries indirectly and so the only way for a large Japanese investor to buy enough to make a difference is at the auctions. And so, if the 30Y auction today prints with a large "negative tail" - inside of the WI - then it would go a long way to confirm the "Japan Panic" trade is on.


The 30Y Treasury has average a 0.74bps positive tail on average, we will be looking for a negative tail today...


For reference, 30Y Bid-to-Cover has been relatively stable since the crisis began...


as Japanese bond volatility explodes...last night was the biggest range in 5Y JGBs in almost 5 years


Charts: Bloomberg

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Mr. Fix's picture

Why do we have to wait till 1 PM to panic again?

Why wait?! We can just start panicking now and get it all out of the way.

TeamDepends's picture

It's the New Normal friend, you can panic any damn time you want!

Bearwagon's picture

Time is relative. Lunchtime doubly so.

The Hitchhiker's Guide to the Galaxy

Divided States of America's picture

I am gonna front run all of you bitches..HAHAHA

Meat Hammer's picture

A wise ZHer once said:

1.) Don't panic

2.) If you panic, be the first to panic.

flacon's picture

We could see gold prices EXPLODE higher to $1,569.00!

IridiumRebel's picture

Panic: ongoing since 2008....
Whaddup Fix!

Mr. Fix's picture

IridiumRebel, good to see you, all is well, just waiting for the end of the world as we know it, but what else is new?

 Keep stacking.

IridiumRebel's picture

I am sir! Me and the wife leave CT in 3 months for Ohio. Vote with your feet!

TeamDepends's picture

We prefer a good panic just before bedtime....

CrashisOptimistic's picture

Excuse me, but can we stop with the bullshit.

Computers don't panic.  HFT doesn't panic.  It just reacts to its opponent.

Just forget this trading stuff.  That's all in the past.  This world is new, and there are no humans involved.

Governments will collectively intervene in ANY financial threat to keeping the wheels turning.  So stop thinking in terms of trading and financial this or that.

Only things government cannot control can take the system down.  That would be oil.

astoriajoe's picture

Well, I think its possible that governments still panic.

TeamDepends's picture

When they see the pitch-forks and torches....

spankfish's picture

That's when the magical Unicorn's shit Bitcoins and save the day... I guess I picked the wrong day to stop drinking.

m0w0g's picture

Who said anything about panicing? This is still just the culture shock!

BlueStreet's picture

Fuck this world, I want off. 

Bearwagon's picture

No one get's outta here alive!

Cognitive Dissonance's picture

They grind your bones to make their bread.

<Gluten free I might add, a definite benefit.>

Bearwagon's picture

When I'm dead and gone, they can do with my bones, whatever pleases them most.

kentmills's picture

Please don't take fractional reserve banking with you.  We don't need to spread it to other worlds.

Thanks in advance, Kent

spankfish's picture

Martian Air booked solid... nobody else getting off this rock we call earth.

Stoploss's picture

Anybody seen my kevlar under suit laying anywhere??

camaro68ss's picture

Bullish for beanie babies... i mean bitcoins

Winston Smith 2009's picture

Bullish in the respect that US public debt will be able to be continually piled on at super low interest rates (for now) as the fiat currencies of Japan and then Europe collapse, making the dollar the last "safe" fiat currency standing.

ZippyBananaPants's picture

can someone please explain what a tail means? negative tail? WI (when issued)?  I read all of this stuff on ZH and understand 90%, this is the 10%

Cognitive Dissonance's picture

Passing the Series 7 might be a step in the right direction.

<Then might not.> 

A_Dog's picture

I passed Series 2 earlier today, it left my toilet messy and I still don't understand how this affects JPY.

Any good books?

Yen Cross's picture

    A_Dog  If yields on the T30 go down significantly then it would signal a huge capital outflow from Japan. That would/should be negative for the yen. It could cause the BoJ to lose control, and the yen to weaken much MOAR.

Cognitive Dissonance's picture

That is the theory. Then again, coordinated global currency debasement is essentially unprecedented. So it seems we are writing the book as we go.

<I hear Krugman will be doing the pornographic fiat illustrations for the limited edition hard cover.>

A_Dog's picture

Thank you. If you were standing infront of a mirror holding 11 roses, you would be looking at the 12 most beautiful things in the world

Tebow's picture

That could be the gayest thing I've ever read on ZH.

A_Dog's picture

I'm just warming up

Cycle's picture

Special High-Intensity Trading is a dirty business.

Dr. Engali's picture

I don't think the 7 will help him with that terminology.

Cognitive Dissonance's picture

LOL. It seems I forgot the /sarc tag again. :)

All the 7 gets you ready for is to sell sell sell sell to the Muppet sheep sheep sheep.

Bangin7GramRocks's picture

Sorry, most of us have no interest in being certified stock pickers, gamblers, liars and street hustlers. I'm happy to be an amateur douchebag!

Ness.'s picture

IIRC - Tail is the difference between the WI and the highest yield on the auction.  Basically, a positive tail means less overall demand whereas a negative tail means higher demand.



ZippyBananaPants's picture

Thank you Ness, simple and to the point.  CD, I did pass the 7 10 years ago, but don't sell bonds.  Hope you have a better day.

Cognitive Dissonance's picture

Sorry. I was just being a little too snarky this morning. And I forgot the /sarc tag.

In reality the 7 gets you ready for nothing but the very basics that really don't apply anymore....if they ever did.

JeffB's picture

I'm glad he asked, as I'm in the same boat.

Thanks for taking a stab at explaining it to us as well, but I thought "When Issued" was the price at auction... I guess not.

So the equation would be:

"When Issued" price

- Price at Auction

= Tail ?

TPTB_r_TBTF's picture

1. In a bond auction, the difference between the lowest bid and the average bid in the auction.

JeffB's picture

Thanks, TPTB_r_TBTF.

It looks like that financial site has a somewhat different definition than the mortgage guy that nbsharma linked to gave, though.

But I guess the bottom line either way is that a negative tail would have pointed to a run by the Japanese big investors to U.S. treasuries. It looks like there was no panic move yet, so I guess we're still good to go, eh?


derek_vineyard's picture

being a contrarian hasn't paid off too well lately

Yen Cross's picture

    I read this piece last night and it is a good reminder for anyone that trades in the Asian currency and equity markets. I shows just how fast things can deteriorate.  As yen slides, 1998 stands as warning to markets - Michael Casey's FX Horizons - MarketWatch

yogibear's picture

Look at Japan, it's the future of the US. Bernanke and the Federal reserve have been advising Japan for years.

Japan's desperation. 

WTF_247's picture

Looks like 1pm is the "all in" buy program time for the SP500