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Which Asset Would You Rather Hold As Collateral?
In a world of shrinking 'quality' collateral to back the ever-increasing leverage and reach-for-yield practicalities of a centrally-repressed market, it seems the actions of the BoJ (as we warned over a month ago) may have just removed the last best hope for keeping Japanese rates stable. As the chart below shows, JGB volatility is simply off-the-scale relative to the other major bond markets. Sustainable? How much return (yield) would you demand for such risk (volatility) before just jettisoning the position?
60-day realized rate volatility...
This is from the October 26, 2012 minutes of the Meeting of JGB market special participants, just as the insanity known as Abenomics was being first revealed to the world.
Another thing to be noted here is the fact that as a risk management method, many domestic financial institutions adopt the VaR approach, which is designed to calculate the amount at risk on the basis of volatility. Under the present circumstances, we can determine the amount at risk to be small because of not great volatility. But if the volatility moves up or down in the order of 0.5% to 1.5%, it will increase the amount at risk, forcing domestic financial institutions to reduce their JGB holdings.
0.5% or 1.5%? Try ten times that.
If any financial institution still adhering to a VaR approach hasn't puked its bond holdings, it will shortly.
and appears to be doing so under the watchful (if impotent) eye of Kuroda...
which looks set to open limit-down if TSY's move is anything to go by?
Charts: Bloomberg
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Limit down worked so well for them the last time so they decided to give it another go?
The Bank of Japan must crush all resistance, and will do so
- Ambrose Evans Pritchard
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024696/th...
BoJ will show those stupid "domestic financial institutions" just who's the boss.
We're gonna need the 4 mil plastic for this one.
Naw, check that, it's looking more like bubble wrap and 2 rolls of 4 mil plastic, we're gonna just to have to cut in the air holes. I think there will be solids with this one.
2 ply or 3 ply? That seems to be the implied question here.
Anywhere you can get 4-ply?
Mr. Bass and Tylers seem to be implying the present $3B / day in JGB purchsases ain't gonna get it done...whatever happened to Waterfall Sparkles anyway???
"Anywhere you can get 4-ply?"
Yeah....they're referred to as Federal Reserve notes.
I like LEAD.
impose the topix upon those charts to give a visual on the diversion(or conversion) correlation. please
Colladeral is for debt slaves to give and bag holders to carry.
The VaR approach to risk management..? Tyler...are you still using a Blackberry or somehting? Still watching Bill Maher ? So yesterday man..
The risk management approach today is Mark to Fed (or ECB) (or BoJ). The MBS etc..being bought by Fed...guess what price is being bid? Do you think that not only are banks getting re-liquified by Fed purchases, but that it means that they can use "latest price paid" to value their PoS collateral remaining on their balance sheet.
Geez...get with the program man. Thats the Old Normal, this is the new, New Normal...
pull yourself together you sound like a clown....on acid....
To my junker....I am sorry. I spent many years at the comedy clubs trying out clowns on acid material only to be laughed off the stage. If you had any idea what courage it took me to take another shot you may not have hit that red arrow so quick. Whatever, I'm done with clowns on acid jokes for good.
http://www.youtube.com/watch?v=zXXl_siUfeg
Dudes it will be very interesting to see how the JGB opens today in about 1 hour. The patterns are bearish and if that low last week is taken out I'm not sure whats going to happen. All the stat arb algos will want to go flat and get liquid, only to find the dollar liquidity aint that easy to get. Hope i am wrong about this but it feels that shit is about to get seriously real. The Kamakaze brigade is about to torpedo everyone else's fixed income mrkts.
fuck it I hope you are right. I have been waiting for reality to assert itself for 5 years.
IMHO we're gonna see unprecedented levels of intervention by BOJ... and maybe the Fed if comes tomorrow the yield are up 50 basis pts overnight
My guess is they halt the bond market a few times, then come in guns blazing. It will be equities that finish in a bloodbath. Same thing for the U.S. Maybe not tomorrow, but there is a point where yields will be kept in check and everything else can go fuck itself if necessary.
We know one thing now. They don't get both anymore. They have to choose.
Only one more hour, and I too, shall get liquid.
Just when I thought all I had to look forward to was booze and pussy, here we go again!
I want matches as collateral.
Maybe BOJ will demonstrate the impotence of all central planners oops bankers
Bwanksters
Zimbwanksters
Make sure you are stocked on popcorn.
I guess basic arithmetic is not a required subject when studying economics.
a real one.
"Collateral Mr. Toad? You don't have anything that is worth anything anymore. I'm sorry but unless you can find a Chinese buyer for one of your kidney's you are SOL."
The USD is doing to the Yen what gold will do to both. Nobody wants to hold the bag when there's a readily available alternative.
Hedge accordingly.