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Japanese Bonds Tumble Most In 3 Months As Ito Says GPIF Should Cut Holdings

Tyler Durden's picture


JGB Futures prices are dropping in a manner eerily reminiscent of the May period of debacle before the BoJ started to regain control. The catalyst for today's biggest bond price drop in 3 months is Takatoshi Ito's comments demanding the Government Pension fund starting greatly rotating from bonds to stocks:

  • "Now is the right time to sell, while the BOJ is buying.” 

Stocks bounced higher initially but are losing most of those gains as bonds hit low prices of the session (and fears re-arise that the BoJ is not in total control after all). As we warned before, the JGB market is "dead" for all intent and purpose and there is simply not enough liquidity to support any significant selling pressure. JGB 10Y Yields are the highest since Oct 1st.

"If inflation reaches 2 percent, and yields rise to 3 percent, and then they start trying to sell domestic bonds, we’ll see disaster in the markets,” Ito said.

But, as Bloomberg reports,

“Mr. Ito clearly has the ear of the Prime Minister, which perhaps means that over a period of time, his views will prevail,” said Jonathan Allum, a strategist for SMBC Nikko Capital Markets Ltd., in a telephone interview from London. “But Mr. Mitani is the man that actually runs GPIF and it doesn’t look like he is very keen to change things any time soon.”

JGBs starting to look a lot like May's debacle...


and intrday as the Nikkei collapses so bonds are now following suit...


More to come?


It's deja vu all over again as we have suffered weeks of daily jawboning the JPY lower (and stocks higher) and now comes the JGB Halts...


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Fri, 12/06/2013 - 01:17 | Link to Comment frankTHE COIN
frankTHE COIN's picture

Ito let O.J. Go. Here comes encore mistake no. 2

Fri, 12/06/2013 - 01:19 | Link to Comment chump666
chump666's picture

Dead market with the "dealers squaring positions ahead of BoJ buy ups" bs

One thing is certain CNY is bid on record fixing, it's all China, they can mess with the JGB curve

Fri, 12/06/2013 - 01:23 | Link to Comment user2011
user2011's picture

Please help me to understand this.   If JGB is dead, isn't this hyperinflation ?   No one wants yen and don't want to park their money in Japan bond.


Fri, 12/06/2013 - 02:37 | Link to Comment rp1
rp1's picture

Hyperinflation requires the Japanese to dissave yen.  If they sell all the bonds to the BoJ and stick the money in savings accounts nothing will happen.  The yen won't even fall.  If they panic and buy foreign assets (selling yen to foreigners) then the yen will fall.  I think that has already happened.  If they invest domestically the yen can rise.  They have to import a lot, so it also depends on what kind of investments they make.

Fri, 12/06/2013 - 01:52 | Link to Comment wisehiney
wisehiney's picture

All I know is what ive seen with my own two eyes. and read about  them. Old school Japs were my favorite to kill in the schoolyard, remember those days? My older friend was an anti aircraft gunner on Okinawa. I asked him late one night, "That must have been fun, kinda like shooting skeet?"  He said, "I'll be durned, skeet don't shoot back at you like a Jap Zero". I said "Oh yeah, I bet not!" How bout another drink of this good stuff I brougt you? You just know that he did. 

Fri, 12/06/2013 - 02:05 | Link to Comment Paradigm
Paradigm's picture

Can you see it on the horizon?  Yes, that is disaster and it looks like it is speeding up!

Fri, 12/06/2013 - 02:18 | Link to Comment rp1
rp1's picture

The BoJ will buy the whole damn bond market, and whatever the consequences are, that's what we will get.

Fri, 12/06/2013 - 04:55 | Link to Comment Squid-puppets a...
Squid-puppets a-go-go's picture

which will be very instructive in anticipating americas bond market in 4 or 5 years

Fri, 12/06/2013 - 02:25 | Link to Comment rp1
rp1's picture

That hissing sound is trillions of yen leaking out of government bonds.  Where will it go?  Where _can_ it go?  Duh:

1) yen is sold to foreigners in exchange for foreign goods and assets

2) yen is put into the Japanese stock market

3) yen is put into the Japanese real estate market

4) yen is put into Japanese corporate bonds

5) yen is spent in the Japanese economy

6) yen is hoarded in savings accounts

Fri, 12/06/2013 - 02:37 | Link to Comment Sizzurp
Sizzurp's picture

Sure BOJ could try and buy them. If we see a flood of bond selling though, all those freshly minted yen pouring out of BOJ will wreck havoc on the currency markets.  The Japanese will see their cost of living double in short order.  Exports will be helped short term, but in the end costs will go up with the price of raw materials in yen terms.  The other option is to let bonds crater, but then the government will be forced into default and everyone is screwed with massive contagion.  It's an ugly scenario either way.

Fri, 12/06/2013 - 02:51 | Link to Comment rp1
rp1's picture

It's not necessarily an ugly scenario.  It really depends on who gets the yen and what they do with it.  It's quite an experiment.  They are going to monetize the debt, but they also have experienced 20 years of deflation.  Prices only rise because people are willing and able to pay.  I think that what the Japanese do with their money is one of the most important economic questions in the world right now, and it's unpredictable.  I don't think something like this has ever happened before.  Does anyone know?

Fri, 12/06/2013 - 07:21 | Link to Comment asteroids
asteroids's picture

It's a dopey experiment. Demographics is killing them. They soon will have the majority of the population retiring. They now sell more adult than infant diapers. Think about that really hard. The minority of the population, the young, will be faced with, finding work, supporting the old, and dealing with the insane debt left my previous generations. Amerika and the west are doing the same damn thing btw.

Fri, 12/06/2013 - 02:59 | Link to Comment Mentaliusanything
Mentaliusanything's picture

I never liked warm sake anyway. The South Koreans, The Tiawanese and even the Thai's can see a steamed frog as they gradually eat Japans lunch. Lunatic soup anyone?

Fri, 12/06/2013 - 03:04 | Link to Comment Sizzurp
Sizzurp's picture

I think that if the BOJ completely liquified the bond market enough confidence would be lost that it would unleash hell in the currency exchange market. Japan would be left paying much higher prices for imported raw materials.  I suspect this would trigger the citizens to dishord their yen in short order, but even if they didn't, they will still be much poorer when it comes to currency exchange.  Higher costs for oil and other imported goods would percolate throughout the economy. 

Fri, 12/06/2013 - 03:11 | Link to Comment ebworthen
ebworthen's picture

Rotate from bonds to stocks?

Don't they realize if they sell bonds and buy stocks the bond rates will go up and bring stocks down?

"I'm caught in a trap...and I can't walk out..."

Elvis in Japan...

Fri, 12/06/2013 - 07:59 | Link to Comment Dre4dwolf
Dre4dwolf's picture

Your not trapped.

Buy gold, oil , food.

Fri, 12/06/2013 - 03:49 | Link to Comment donpaulo
donpaulo's picture

Its only going to get worse. Salaries are down, costs are up due to weakening yen. Taxes are up yet the govt just spent another 5.5 trillion yen...


Fri, 12/06/2013 - 07:50 | Link to Comment hugovanderbubble
Fri, 12/06/2013 - 08:09 | Link to Comment buzzsaw99
buzzsaw99's picture

another corrupt pension fund manager, shocking [/sarc]

Fri, 12/06/2013 - 08:56 | Link to Comment Ajax4Hire
Ajax4Hire's picture

The names "Bond", Japanese Bond.

No Mr. Bond, I expect you to die!

I so excited, the movie is close to the end, I wonder how the director will wrap up this story.

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