JGB Futures Narrowly Avoid Third Halt In Three Days (By A Tick); 5Y Yields Jump To Highest In 22 Months

Tyler Durden's picture

JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit) but two words spring to mind - not orderly. It seems the pendulum of 'inflation repricing channel through the JPY' has begun to swing back towards the JGB market - not what Abe and his cohorts would have hoped for given the deluge of monetization they are up to. As we originally discussed here, the inflation expectations can be spread across bonds or FX and just as we saw in 2007, 2008, and 2011, the initial burst takes place in one market and the normalizes as the other catches up. In this case it was a massive devaluation of the JPY that is now being 'caught up' to by the JGB yields rising. 5Y JGB yields just topped 40bps (from a 9.9bps low on March 5th!!) and their highest since July 2011. Of course, the problem with rising rates is the burden it puts on the government as cost-of-debt accelerates beyond tax revenues with negative trade balances; and if the JGB channel is now 'inflation security of choice' then JPY devaluation will take a back seat (and so will JPY carry trades driving risk-on around the world - as we noted here). And as if that wasn't all exciting enough, Japanese Machine Tool Orders re-accelerated to the downside -24.1% YoY (worst since January).

JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit) but two words spring to mind - not orderly. Both times JGBs approached the -1.00 level, a miraculous JPY selling pressure appeared (stealing the devaluation/inflationary thunder) and the bonds rallied modestly off their lows...


now with price at one-year lows...having seen the biggest 3-day drop since Lehman...



Inflation expectations priced into USDJPY first this time - but just as we saw in 2007, 2008, and 2011, it doesn't take long for the other 'channel' to catch up...


and since the BoJ meeting, yields across the curve are surging...


Charts: Bloomberg

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ghostfaceinvestah's picture

This is gonna get ugly, I pity the poor Japanese people.  And for what?  Isn't the unemployment rate there something like 5%?  Why was deflation so bad?

foolbar's picture

Once upon a time the target in the USA was 3% or less.

Historically Japan endorsed a 0% un-employment,

SO in JAPAN 5% is terrible, at this point they had nothing left to lose, and the cheap yen, now makes their high quality products cheaper, which in turn creates jobs, ...

WRT to their bond market, ... so what, they're just a few years ahead of the USA, wait & watch the US bond market collapse and enjoy the show.

I don't pity the JAPANESE people, they love their culture, and family's, and they're hard workers.

I pity the US public, they're stupid, lazy, misinformed, and heading into a civil-war.

MisterMousePotato's picture

I have a question. The direction of Japan's monetary policy has been questioned here in this forum since the moment Abe got the gig (and maybe even earlier). And now, here it is, months later, and, well, is anything that is going on right now really any big surprise? To anyone? (And, no, I'm not talking about the average American voter, but those who have more than a passing interest in and knowledge of such things?)

Or is this, in fact, all going according to plan?

Rick Blaine's picture

It probably depends who you ask...but many people would say what's happened thus far is a bit "disorderly," as Tyler suggested.

Disorderly, as in:




Golden_Rule's picture

Methinks the ship is sinking.

GetZeeGold's picture



The ship is fine...it's just the island that is capsizing.


Everyone on the damn boat. Let's get the hell out of this crazy place.

howenlink's picture

My wife asked me to stop talking about political philosophy so she could sheep.

MisterMousePotato's picture

Bon mot. Mine, too. I don't get it. Whether you think, e.g., Barack Obama is the antiChrist or the Second Coming - wherever on that continuim you may be, how the hell could anyone not want to know as much as one could know about what is going on in a world that appears to be tilting out of control? I don't get it. I wonder how many, e.g., Jewish fathers in Germany and other places in Europe sat down to talk to their wives in 1934 or thereabouts about political events, and what they might portend practically speaking, only to be shut down? I don't get it.

bunnyswanson's picture

Let me please add some insight to your comment regarding "talking about current affairs" and Jewish men in 1934.  The one time I was able to ask questions of a nonpracticing, accomplished Jewish man, over 2 days, nonstop, he shared that Jewish guilt due to their stance of nonresistance initially is one of the motivating factors in their ambitious and relentless pursuit of world domination. 

This man shared that very stressful life due to his mother's, grandmother's, sisters, ect ability to provoke a sense of failure and guilt into action by "summing it all up" and blaming him and all Jewish men. 

Bernie Maddoff's wife was similar, I have read, ridiculing him in public, showing disappointment in his decisions and basically calling him a loser and buffoon other than when he gifted her with nice things (mansions and Jaguars).

He stated there was hysteria, paranoia, constant worry about "another one" and nonstop arguing over any subject matter (disagreeable to disagree) led to causing a myriad of gastrointestinal issues and obsessions was why he said he left home and married a WASP. 

He also, even as the son and grandson of a rabbi?  (expert in his field, but I cannot recall what he said his father was, only that he did not earn money, relied on donations) and studied all of the time. 

I think we need to consider the state of the character of the Jewish man when he is at home with his family.  I think there is a need to talk because it's not our imagination and it is going to end badly, though it is very difficult for people to comprehend food shortages and breakdown of society in this country.  Regret and guilt are heavy burdens.

MisterMousePotato's picture

Okay. Forget about Jews, then, in Germany or anywhere else.

Whites in South Africa, then. (Or whites in the United States, for that matter.) Christians in Egypt or Tunisia right now, then. Or how 'bout just about anyone in Zimbabwe who wasn't 'connected'.

kareninca's picture

MMPotato, there seems to be a huge gender difference.  I know very, very few women who can stomach following the sort of stuff ZH covers.  The women I know are depressed by it so much that they find it incapacitating.  My mom just told me that she found the past year to be a horrible one because she actually listened to the news that my dad listens to.  She isn't stupid at all; she came to all the right conclusions.  However, she also decided that she is not going to listen to the news very much any more.  None of her friends do; they are utterly oblivious and utterly happy, attending Red Hat Society events and cooking pies for the Congregational Church pie sales.  Their husbands can tell you about WWII battles and the atrocities that accompanied them.

I have a good friend who tells me that a single newspaper headline can upset her for a week, so she avoids all news.  She is not an innately stupid person, but she might as well be stupid, given the views she develops in the absence of real information.

I think that women are genetically selected to not think about how horrible things can become, and how fragile society is, and what terrible things could happen to their loved ones.  If they did, they wouldn't want to reproduce.  I would bet that the few women who read ZH, are more likely than the norm to not have kids.

prains's picture

my wife for all intents and purposes said these exact words and was more than happy to say them. doesn't want to know

HobbyFarmer's picture

Not to come across as piling onto any shortcomings of the fairer sex: but I have very similar experiences.  My wife doesn't talk about these matters with me and yet she is one of the smartest people I know.  My closest friends are all female (from work) and I cannot have a conversation about financial problems (or long emergency) with them.  Several have told me they would rather not know about the bad things coming.  Ok, I don't talk anymore on those topics.

It goes against logic, as I would think they should have a built-in mechanism to prepare for tough times, for their children's sake.

q99x2's picture

Kyle Bass has fingers crossed that he gets paid before Ice-nein.

asteroids's picture

He will get paid, it'll just take a bit more time.  You can't fight the math. A whole generation of dopey economists will discover that there's nothing wrong with a healthy dose of deflation. These 2% inflation targets are insane.

resurger's picture

BOJ started buying maybe.

gkumar's picture

So whats wrong if the JGB futures are falling. The simple logic for it is money is shifting from JGBs to risky assets.

Notice the rise in Nikkie along with the fall in JGB prices.

it is not that yields are rising as suddenly japan has become insolvent.

Tayler when are you going to Stop these fear mongering and misinformation campaign

If you say japanese must be contend with the peanuts they are getting from JGBs and not look at Nikkie and overseas assets they are not going to oblige like the zeohedgians who avoided stocks and bought Gold





Non Passaran's picture

I don't know if you actually read the main premise here and that is the government won't be able to finance its debt except by going all-Ponzi.

foolbar's picture

Isn't just about everyone already 100% pure ponzi?

Madoff just a few months ago pointed out that the USA-GOVERNMENT wasn't biggest ponzi on the planet.

Japan is simply being MORE US than the US, ...

Voting on the people, I would say that the at the end of the day the Japanese people have my vote of confidence, ... work ethic and all,

The USA on the other hand has nothing but downside.

"Going all Ponzi", ... what are we talking about 120% ponzi? The USA is already 1000% ponzi probably higher, and the stock market is just fine.

Interest rates will rise, and all that debt will be hard to finance, ... so they'll KILL the debt, so what? USA has failed to PAY ( make good ) their debt to many times in past history.

More interesting is not to study dead beat nations like the USA, or Japan, but to watch the winners like singapore, or HK, or switzerland.

Me thinks that TYLER spends way too much time writing about people who are MORE fucked than the USA ( cyprus, japan, argentina, ... europe ), ... a little more focus on where things are RIGHT, and governments that are NOT run by KLEPTOCRAT's would be far more useful as a zero-hedge.

Staying in the USA or Japan, and going down with these ships is suicidal, ... read Faber's 'tomorrows gold', if you not have a clear understanding of failed mercantile economy's.

Also this focus on loser nations is boring,... I want to know who is winning this currency-war, and where to keep my money safe, ... of course this is a rhetorical request, but there are a lot of smart people here, but the leader is leading them where?

I'm so fucking bored of "LOOK over there, they're worse off than you", ... who gives a fuck, ...

All these subject posts by TYLER are all spoon-fed government bull-shit, ... and then we comment on this non-sense. This will get boring quick.

Is there any other main subject posters here than 'GW' or 'tyler', or is ZH just the same BS everyday?

I heard there were smart people here, but it really seems like its being led by some kind of fucking agent provocateur from a bad 1960's 'get smart' show.

prains's picture

FB- the shorter version to your point is:


and to your point about MOAR PONZI, Bass said it best last week "shit they're doing more ponzi on the ponzi..." (not exact quote)


and yes the Simon Blacks of the world get lots of play here but it's a test called "pick the prop from the crop" keeps the mind sharp trying to follow the rigged game, kinda like following a verbal escher and not getting dead-ended.

JPM Hater001's picture

I just gotta get more cowbell.

fonzannoon's picture

I don't know that I agree with you, but I hear where you are coming from. I just think this used to be a market focused website. Central planning has killed the market. Destroyed it. It's dead and buried. Nothing else to figure out except the day the big selloff comes, which could be never.

In the meantime I guess ZH is trying to not let us become a bunch of ignorant sheep by hitting us blow by blow with a detailed news feed on the demise of the western world. In a way it is working in that more people are waking up. But after a few weeks of this they get paralyzed with fear.

Every once in a while Simon Black drops in and tells us to move to Chile and Argentina, where I am sure we will all be welcome with open arms.

prains's picture

the complaint is a common one being that a lot of the articles are diagnosis of the problem ad nauseum with little to no perscription and add to this, the diagnosis commonly deviates from the main thread that really in the end is;

the USA/Wall Street (the two are now inseparable) has by in large been the maker/creator/benefactor of the entire fucking mess. With all the noise on ZH the main thesis of "you broke it, you fix it" gets lots in a lot of these articles

M2Market's picture

Actually at these levels yes you're right the absolute yield is still low and does not warrant any immediate concern.  It is changes at the margin going forward that gets people worried.  There's only a thin line between truth telling and fear mongering, and quantitative data does not lie. 

For those technical traders out there JGB had just broke through an important technical support 3 days ago.  This support had been in place for over a year already, and now its gone.  The short and intermediate term trend is now down for JGB, which hasn't happend since 2011.  A multi-decade uptrend line is about to be breached, which to techies is a pretty serious matter.  If this JGB selloff turns parabolic we can see this thing below 140 in a few weeks.  That will cause panic since rising rates coupled with plungin yen means these life insureres and pension funds' fiduciary duties will be questioned. 

Soveign debts can always be repaid with sovereign currency, so there is no risk of default, so says the critic.  But these Japanese government liabilities are Japanese citizen's assets and devalued sovereign currency is no different than a formal re-structuring of the debt, it is restructured through devaluation.  Holders of these bonds and currency will have to take a haircut no matter what, default through insolvency or default through devaluation, the haircut on asset holder's balance sheet remains the same. 

If this thing starts to get parabolic things can get interesting really fast.  Stay tuned for sure.

gkumar's picture

So whats wrong if the JGB futures are falling. The simple logic for it is money is shifting from JGBs to risky assets.

Notice the rise in Nikkie along with the fall in JGB prices.

it is not that yields are rising as suddenly japan has become insolvent.

Tayler when are you going to Stop these fear mongering and misinformation campaign

If you say japanese must be contend with the peanuts they are getting from JGBs and not look at Nikkie and overseas assets they are not going to oblige like the zeohedgians who avoided stocks and bought Gold





GetZeeGold's picture



Is there an echo in this room?

chump666's picture

We got a panic attack on the USD from the usual suspects BoJ, Fed and ECB.

I smell fear.

resurger's picture

Guys i really need help here, what is Johnny 5? Is it a robot that does HFT or something?

JLee2027's picture

It's amazing how, after a few days of utter disaster, markets again and again seem to magically recover.

pcrs's picture

You wonder who is doing the selling that overwhelmes the BOJ buying an how long does it take before the BOJ owns all the bonds?

Watson's picture

People selling JGB's does not itself generate inflation.

If Mrs Watanabe sells her JGB position because she sees her savings losing money and acts to stop the losses, nothing forces her out to buy other assets or consumer goods. Indeed, the very fact of the losses would discourage her.

Given the Japanese (entirely commendable) desire to save, probably ends up as Yen-notes under the bed...

lolmao500's picture

Yields going up : QE is working!

/way to go Abe!


dr_doom's picture

Tyler, please, it's getting exhausting.... call us again once the 10 JGB yield hits 1.2. That's about the level two years ago. In the meantime, sit back and relax. The BoJ has not yet even started to manipulate this market. It will take a while until we get some real fun. Meanwhile, don't scandalize every blip in the market.


d_taco's picture

The extra yield they have to pay on JGB are already compensated for by the extra money they get on treasuries now the Yen is down.

BoJ decide what the yield is on JGB, it is clear they want to drive it down.

There will be no hyperinflation, there is only some forced rotation.

Japanees elite want BoJ to buy stocks. BoJ can not buy stocks -->

BofJ scare everybody out of JGB, they pay zerohedge to do the scare mongering -->

When they are not able to keep the Yen down there income from Treasuries will collapse--> they start buying JGB.

My prediction: December 2013

Elite has reaped extra profit from Nikkei

Yen/Dollar at same level as 2012

No inflation in Japan (Inflation only works through credit creation channel)

JGB yield down again.

Zerohedge receives its pay check

Everybody happy!


Fuh Querada's picture

"BoJ cannot buy stocks"
Why not - and don't say because it is prohibited by charter, because CB charters aren't worth sh*t any more

lolmao500's picture

While Abe is being stupid again...


Abe poses inside jet plane numbered 731 at ASDF base


The number 731 reminds people of Unit 731, which was a covert biological and chemical warfare research and development unit of the Imperial Japanese Army that undertook lethal human experimentation during the Second Sino-Japanese War and World War II.


Spectre's picture

Sooner or later the unintended consequences of JP's recent printing party will bite them in the ass. By the end of August, a curve ball from hell will spoil this big party that all central bankers have enjoyed colluding to.
My pick is the ball comes from China.

Zgangsta's picture

August would be after elections, which is the most important thing on politicians minds right now. They will worry about August when August gets here.

Fuh Querada's picture

I still haven't seen a convincing explanation of why they can't print the money to pay the bond interest, tax revenues are irrelevant.

They trynna catch me ridin dirty's picture

Because bond buyers will quickly realize that they are being paid with inflated money and start to demand higher and higher yield to compensate. It ends the same either way, only difference is one may take slightly longer than the other.

Downtoolong's picture

JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit)

So, the only question really is who came in for the save? Was it Abe, or was Ben up all night again?

Silverhog's picture

Gee... another morning Silver smash in the thin atmosphere of the Globex. Surprise, surprise.

toadold's picture

Japanese employment figures are deceptive.  They have some of the same problems the US has in that people are unable to get full time employment. They get hired as temp help so companies can avoid mandated benefits.  Also the ratio of people who work directly and indirectly for various government entities compared to that who work for private industry is on the high side.  You have a taxation and regulatory system that is strangling start ups in the private sector.  Also some of the people who are laid off seem to be listed as retired if they are old enough even if they don't have anything like the income they had when they were working.  The homeless count is higher than the government is willing to admit to.  

Despite cultural and geographic differences, basically they are caught in the same old tax and spend trap  that all the other centralized economies are trapped in. They are using the same fiat currency printing as the end game plays out.  The governing elite are trying to preserve their slice of the pie but it is slowly coming to the point where they will start fighting each other for the last bowl of rice. 

e-recep's picture

just as i predicted i am seeing less and less japanese tourists around the world. travelling into exotics destinations is getting expensive for them.

Fuh Querada's picture

How can you tell them from the Chinese?