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Japanese Bond Implied Volatility Spikes To 10Y High; Stocks Drop First Day In Last 8

Submitted by Tyler Durden on 04/12/2013 00:30 -0400

It's been a long night for the Japanese markets. As Abe and Kuroda awoke stunned that JPY had not broken above 100, things went from bad to worse as USDJPY slid 60 pips from the last US day-session. The Japanese equity market is following the FX pair in its hyper-correlated way as TOPIX is struggling with its first loss in eight days. The Japanese bond market is not doing well either, despite the BoJ's JPY2.5 trillion monetization today. 7-year to 30-year JGBs are 5-7bps higher in yield (3-4 times the average move) and JGB Futures are suffering significantly with the 10Y down over almost a point - within a tick of triggering the TSE's circuit-breaker for the 5th time in 6 days. While everything points to a 'disorderly' market (especially in bonds), we can rest assured they are on it:

*KURODA CONFIDENT BOJ CAN BUY BONDS AS PLEDGED

Add to that the fact that JGB implied vols just hit a 10-year high and it seems all is well in the land of the setting sun once again.

Three concerted JPY short-covering attempts so far in the last 24 hours...

Stocks down for the first time in 8 days...

JGB realized daily ranges remain astronomical in the context of the last ten years of trading...

and JGB Futures gapped lower (in price) after the monetization getting within 5c of the 5th halt in 6 days...

Charts: Bloomberg

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Fri, 04/12/2013 - 00:41 | 3439619 mayhem_korner

The captain has just illuminated the seat belt sign.

^{2.5Trillion monetization "today" Anyone seen normalcy lying around?...Bueller? Bueller?}

Fri, 04/12/2013 - 00:57 | 3439666 FoeHammer

Boom, bust cycle. Can anyone tell me what the boom, bust cycle says?

Fri, 04/12/2013 - 01:10 | 3439689 Rick Blaine

Queue cheesy synth music...

The fi-nal count-down!!!

http://www.youtube.com/watch?v=9jK-NcRmVcw

Fri, 04/12/2013 - 03:10 | 3439807 fourchan

the job of the fed is to make money for its shareholders by any means.

the means it has always used is to create boom and bust cycles.

these cycles capture loaned on property and enslave the borrowers to debt. to those who are not enslaved already,

the fed devalues their savings of frns through inflation, which is only another word for devaluation.

the "system" is working perfectly and as planned by its creators 100 years ago.

the fed has stolen america and enslaved a free people.

none dare call it treason.

Fri, 04/12/2013 - 03:25 | 3439822 Bearwagon

As a man who thinks that Hanlon's Razor yields viable results, I'd call it stupidity!

Fri, 04/12/2013 - 04:07 | 3439855 Popo

Yes, but there's not a trader left on Wall Street with the balls to stay short over the weekend. So we'll see an early-session pummeling which lasts into mid-session, and an end of day bounce as everyone covers into the central-planning session, otherwise known as the "weekend".

Fri, 04/12/2013 - 06:41 | 3439943 markmotive

Kyle Bass: The Beginning of the End is Here for Japanese Government Bonds

http://www.planbeconomics.com/2013/04/kyle-bass-beginning-of-end-is-here...

Fri, 04/12/2013 - 06:47 | 3439952 malikai

EVERYONE CALM DOWN.

...and RUN!

Fri, 04/12/2013 - 06:50 | 3439956 GetZeeGold

Cue up the next banksters war.

In 3, 2, 1.........

http://www.youtube.com/watch?v=5hfEBupAeo4

Fri, 04/12/2013 - 01:34 | 3439715 lipskid

2.5T Yen IS the new normal, until it isn't. They have no way out in the short term. It has been less than a week and they can't do moar and they certainly can't stop without causing absolute chaos. Currencies are about trust/confidence, but even more than usual with the way the psyche of Japanese society works.

They will keep doing what they are doing until it is obvious they have failed. If this is the end of Japan as Bass, Einhorn, etc. believe, then I would not be terribly surprised to see seppuku come back into fashion.

I personally have no idea, but I am short JGBs and would buy Bernanke a wakizashi if he would be kind enough to follow suit.

Fri, 04/12/2013 - 00:42 | 3439637 Dr. Engali

So this is what a currency in it's death throws looks like.

Fri, 04/12/2013 - 00:45 | 3439642 mayhem_korner

That's what I think every time I open my wallet and find but a single, lonely fiat in there, incapable of buying anything.

Fri, 04/12/2013 - 00:48 | 3439651 UP Forester

You could always buy a penny-candy with it.

I like the Root Beer Barrels.

Fri, 04/12/2013 - 01:02 | 3439675 mayhem_korner

Pretty soon maybe be able to buy a late model Toyota, too.

OT...anyone met the Google captcha recently? The one to make sure one is not an HFT algo?

Fri, 04/12/2013 - 07:33 | 3440005 BandGap

Where in the UP? I have acreage in the Iron River area.

Fri, 04/12/2013 - 00:46 | 3439648 otto skorzeny

GS says nikkei to run another 20% in next 12 months-time to get your shorts on.

Fri, 04/12/2013 - 00:53 | 3439660 Hopium Dealer

This is one of the rare examples that I believe GS is underestimating. Japan said it will DOUBLE its monetary supply. 20% is a pretty low estimate. The real question is which comes first: hyperinflation or a bond collapse.

Fri, 04/12/2013 - 01:05 | 3439684 chump666

Japan will be at war before it hits hyperinflation, in fact the whole world could be if China unloads it's holdings. Could be a sign.

Fri, 04/12/2013 - 00:48 | 3439649 mayhem_korner

And so what are the prospects for the U.S. trade deficit in Q2?

^{Must...revise...GDP...moar...downward!!!!}

Fri, 04/12/2013 - 02:06 | 3439759 Yen Cross

Check this out Mayhem. http://www.efxnews.com/story/18230/ecb-us-sequester-trim-us-gdp-05-08-pc...

I doubt you'll see that in the LSM.

Fri, 04/12/2013 - 06:52 | 3439959 malikai

SNIP -

"The ECB estimated that the US sequester in place since March - amounting to a federal spending cut of about $85 billion for this year and $109 billion in coming years - will shave 0.5-0.8 percentage point off GDP this year and up to 0.2 point in 2014."

Without that $85b in misallocated capital, we won't hit our production quotas (GDP). So does this mean our chocolate rations will be reduced?

Fri, 04/12/2013 - 01:03 | 3439673 chump666

Looks like breaking 100, as long as the massive YEN carry trade (AUD) holds up. AUD bid etc USD/DXY selling etc

Fri, 04/12/2013 - 01:02 | 3439680 FinalCollapse

Moar diarrhea.

Fri, 04/12/2013 - 01:08 | 3439685 ebworthen

DOH!

At some point, central banks buying anything to float everything will be completely impotent.

Fri, 04/12/2013 - 01:48 | 3439744 resurger

Reading the Central Banks actions just makes me puke...

everything has a price tag, except for the humans who are worthless.

Fri, 04/12/2013 - 02:01 | 3439755 hejss

Can someone explain this like for a child? :) It means Yen would weaken against the Dollar? Why would it be out of control?

Fri, 04/12/2013 - 02:11 | 3439763 Awakened Sheeple

Small rise in bond rates would make funding Japan's deficits unpossible without more monetizing which would lead to higher bond rates etc. Currency collapse and a 10 on my shit-my-pants o'meter.

Fri, 04/12/2013 - 02:42 | 3439787 Dudeskis

On the upside do you think Japan might take 10cents on the dollar for their US T's when their eating the pensioners and burning all the child porn manga for heat?

Fri, 04/12/2013 - 02:55 | 3439794 Awakened Sheeple

I'm actually worried about what we'll be burning for heat... If Japan blows up then all the cds and derivative bets the banks made amount to humongous losses. This could be the Lehman moment of the soverign debt crises. Japan is too big to fail. Economic collapse 2013 bitchez.

Fri, 04/12/2013 - 03:04 | 3439804 Dudeskis

Well I'm stocked on food, water, fuel and ammo for 6 months and living in a downtown luxury apartment filled with female medical school students.

I welcome reality regressing to the mean.

Fri, 04/12/2013 - 03:33 | 3439831 Bearwagon

"Let those who are inside the city depart, and let not those who are out in the country enter it."

Just sayin'. ;-)

Fri, 04/12/2013 - 03:27 | 3439825 Bearwagon

We shall be free!

Fri, 04/12/2013 - 05:20 | 3439893 Awakened Sheeple

Edit from above: Higher bond rates would make servicing Japan's debt impossible

Fri, 04/12/2013 - 07:10 | 3439980 ozzz169

Kinda right, but mainly when they create inflation investors will demand higher yields on bonds because of the falling yen, making bonds worth less, and real yields lower. This will push interest cost up and BOJ is forced to buy ridiculous amounts of bonds leading to massive inflation and then hyperinflation.

to simplify bond yields = inflation + risk premium + time premium and inflation has been -1 and they want +2 or +3 change and bond purchasers would want 1+3 to get a the same +2 real returns they are getting now, and this will push Japan to point were interest cost eat up 100% of government revenue, pushing the monetization/inflation scenario seen many times around the world.

monetizing the debt doesn't lead to higher rates, rather lower rates at the cost of decline in yen and inflation

Fri, 04/12/2013 - 02:02 | 3439756 Bohm Squad