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Japanese Bond Yields Tumble To 9-Month Lows As Asian CDS Surge

Tyler Durden's picture





 

As a prelude to the following dismal market update, Japan just posted the largest annual trade deficit ever (ever ever ever) at JPY 11.47 trillion... so much for Abenomics and the magic J-Curve as the year just got worse (not better). With the Nikkei 225 (cash) down over 400 points (as we would have expected given futures action) and back under 15,000; Japanese stocks are at 7-week lows but Japanese credit risk is rapidly accelerating lower at its riskiest in 10-weeks. Japanese government bonds are well bid with yields on the 20Y having dropped to 1.443% - the lowest since April 2013. Away from Japan, the iTraxx Asia index (which tracks credit risk of investment grade corporates) has soared in the last few days to almost 5-month highs. Emerging Market Sovereign CDS are all notably wider with Vietnam and Indonesia topping the relative moves so far (and most at multi-month wides). Chinese repo is stable for now (CDS are wider by 2bps at 7-month wides) but so far, no good, for those believing the contagion in EM FX will remain contained.

 

The largest annual trade deficit ever ever ever for Japan...

 

and no sign of the mythical J-Curve...17th monthly deficit in a row, worst in a year

 

As we warend a year ago - its going to be a cold, expensive winter for the Japanese (as the de-nuclearization and de-valuation of the currency crushes their dreams as energy costs soar) - and we were right...

As the trade data shows - mineral fuels 36.6% of total imports, rose 24.2% Y/Y

 

As the price soars by the most YoY in almost 2 years...

 

It appears even Goldman Sachs has given up on the J-Curve (perhaps the "J" really stands for "Just Kidding")

Goldman Japan Trade Outlook - Trade balance to remain in the red, likely delay in J curve effect: We expect the trade balance to remain in the red in the near term, but we see a gradual improvement over time in line with the J curve effect. With the boost to export volumes from yen depreciation weakening, however, we draw attention to structural changes in imports, including higher electrical machinery imports.

Japanese stocks catching down to credit's early warnings....

 

and Japanese bonds surging (yields tumbling) as quasi safety is sought...

 

And Emerging Market CDS are surging...

 

Charts: Bloomberg

 


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Sun, 01/26/2014 - 22:15 | Link to Comment holdbuysell
holdbuysell's picture

Fukushima was the mortal blow.

Sun, 01/26/2014 - 22:24 | Link to Comment westboundnup
westboundnup's picture

 aging population, debt to GDP ratio, earthquakes / tsunamis, N. Korea to the northwest, China to the southwest

Japan was dealt the mother of all bad hands

Sun, 01/26/2014 - 22:33 | Link to Comment Spankrupt
Spankrupt's picture

Don't forget Gojira

Sun, 01/26/2014 - 22:39 | Link to Comment Muppet Pimp
Muppet Pimp's picture

Japanese Fisherman regrets roughing up giant squid, realizes in retrospect that squid was clearly doing gods work.

http://www.reuters.com/article/2014/01/14/us-japan-giantsquid-idUSBREA0D...

 

 

Sun, 01/26/2014 - 22:48 | Link to Comment Muppet Pimp
Muppet Pimp's picture

Silence (Scorcese 2015)

http://www.imdb.com/title/tt0490215/

Sun, 01/26/2014 - 22:42 | Link to Comment westboundnup
westboundnup's picture

The box office bomb, 47 Ronin, was based on a Japanese legend involving samauri who avenge their master's downfall.  The last time a movie called 47 Ronin was in theaters was in Japan . . . in 1941.

Sun, 01/26/2014 - 22:49 | Link to Comment suteibu
suteibu's picture

The latest one was not only a stupid movie but offensive to the legend of the 47 ronin.

Sun, 01/26/2014 - 22:56 | Link to Comment westboundnup
westboundnup's picture

Stupidity evidenced by the studio's demand that Kneau's character (not even part of the original legend) be the focal point of the narrative.

Sun, 01/26/2014 - 23:00 | Link to Comment disabledvet
disabledvet's picture

this one was pretty good though: http://www.youtube.com/watch?v=QE3yMEfpk6E
pretty much spot on from where i'm sitting.

Sun, 01/26/2014 - 22:44 | Link to Comment TruthInSunshine
TruthInSunshine's picture

A massive government surplus and Nikkei 40,000 in 1989. After trillions upon trillions upon trillions (in USD) of stimulus, bond buying, digging holes & re-filling them, and generally engaging in full scale Krugman-nomics for 24 years now, leading to Japan having the largest official Debt-to-GDP ratio of any developed nation by a large distance, and the Nikkei at approximately 15% of its levels in 1989 in real terms, I'm sure that Paul "When Mars Attacks" Krugman is rightfully proud of his economic quackery.

Paul Fukkin' Krugman...

Sun, 01/26/2014 - 23:07 | Link to Comment disabledvet
disabledvet's picture

they're not ready. but these folks are: http://en.wikipedia.org/wiki/CB90_class_fast_assault_craft

Sun, 01/26/2014 - 22:36 | Link to Comment Matt
Matt's picture

They dealt themselves this hand when they over-extended themselves in World War 2.

Sun, 01/26/2014 - 22:48 | Link to Comment denverdolomte
denverdolomte's picture

Allying with the US has worked out so well for them. /sarc.

Sun, 01/26/2014 - 23:30 | Link to Comment Matt
Matt's picture

With a lack of natural energy resources, post WW2 Japan was already doomed. They didn't choose America as an ally, America occupied them and gave them a constitution and has bases there since.

Sun, 01/26/2014 - 22:18 | Link to Comment climber
climber's picture

Wait so if QE was modeled after Abenomics... 

Sun, 01/26/2014 - 22:46 | Link to Comment NoDebt
NoDebt's picture

No, Abenomics was modeled after QE and then fed a straight steroid diet.  And as with all centralized control, statist failures, it will be blamed on having "the wrong people running it" not because the policy itself was fatally flawed.

Sun, 01/26/2014 - 22:22 | Link to Comment Yen Cross
Sun, 01/26/2014 - 22:22 | Link to Comment ultimate warrior
ultimate warrior's picture

Deficits don't matter.

-Lord Krugman

Mon, 01/27/2014 - 00:10 | Link to Comment Schmuck Raker
Schmuck Raker's picture

"In the long run we'll all be dead." -  Keynes

 

Of course, he is dead. Now it's just  the rest of us cleaning up/surviving his aftermath*

 *Pretend "math" is underlined.

Sun, 01/26/2014 - 22:22 | Link to Comment syntaxterror
syntaxterror's picture

Who the fuck buys a 20-year bond yielding 1.4%? 

Sun, 01/26/2014 - 22:34 | Link to Comment wisehiney
wisehiney's picture

Someone who know it's a double when it yields .7%.

Sun, 01/26/2014 - 22:52 | Link to Comment OC Sure
OC Sure's picture

Yeah, but who the F*** buys a 20 year bond yielding .7%?

Sun, 01/26/2014 - 22:59 | Link to Comment wisehiney
wisehiney's picture

OC, be Sure to watch the real yield (net of deflation). If goods prices drop faster than the nominal bond rate, you are making money even at negative yields. 

I just saw regular gas at $2.95 for instance. Check the chart for commodities. As the economy fails, people will flee corp bond in favor of sovereigns. 

Sun, 01/26/2014 - 23:01 | Link to Comment fonzannoon
fonzannoon's picture

debt to gdp of 300% and people still go scrambling to bawnds. Kyle Bass must be pulling his last 3 hairs out.

Sun, 01/26/2014 - 23:06 | Link to Comment wisehiney
wisehiney's picture

What would greenspan call that? He has already used "conundrum". 

headscratcher? puzzlement? perplexer? enigma-rator?

Sun, 01/26/2014 - 23:11 | Link to Comment fonzannoon
fonzannoon's picture

Victory

Sun, 01/26/2014 - 23:17 | Link to Comment wisehiney
wisehiney's picture

Ha!

But what happens when people soon discover that they never really had control. You know that they want to stop with the taper, and when they do surrender and do just that, there may be a new realization.

Sun, 01/26/2014 - 23:19 | Link to Comment OC Sure
OC Sure's picture

WH, i see. I was just kidding; thought you may say someone who expects half a yield of .7%. If goods prices are dropping then this is the same as saying that purchasing power is increasing. If purchasing power is increasing can yields stay negative for long? In japan, with such low rates due to deflation, how does one measure if the real rates are negative or not? I thought that to find a negative rate you just subtract the inflation rate (cpi) from the nominal yield.

Sun, 01/26/2014 - 23:27 | Link to Comment wisehiney
wisehiney's picture

Tbonds may hold up best during a deflationary spiral scare. But that will also provide the cover/excuse for the printers to go all zimbabwe. Jack be nimble indeed. 

Sun, 01/26/2014 - 22:34 | Link to Comment spankthebernank
spankthebernank's picture

Ha, ha! The Fed.

Sun, 01/26/2014 - 22:36 | Link to Comment Yen Cross
Yen Cross's picture

  You got 6 votes for asking that question? Let me ask you question, If you don't mind?

  What is the OIS swap rate "Fed to Asia" (3day) in basis points?

Sun, 01/26/2014 - 23:12 | Link to Comment wisehiney
wisehiney's picture

Am I right that the price of the 10yr U.S. treasury just gapped lower in price for the Japanese buyer?

Sun, 01/26/2014 - 23:33 | Link to Comment syntaxterror
syntaxterror's picture

Money changers' gonna profit, right boss?

Sun, 01/26/2014 - 22:22 | Link to Comment The Wisp
The Wisp's picture

So I had two choices in buying a new Car.. Korea or Japan, and I asked myself.. do i really want Radiated tailight bulbs. ?

Sun, 01/26/2014 - 22:30 | Link to Comment FuzzyDunlop21
FuzzyDunlop21's picture

do you want your car to glow in the dark?

Sun, 01/26/2014 - 22:33 | Link to Comment westboundnup
westboundnup's picture

You may be joking, but I will not buy a Japanese car for just that concern.  No matter how much radioactivity, no way Japan or the US would allow auto imports to be affected.

Sun, 01/26/2014 - 22:45 | Link to Comment NoDebt
NoDebt's picture

Dude, most are built in the US.  

OK, OK, using many parts from Japan.

Um.... you know what?  I think I actually agree with you the more I think about it.

Buy American!.... because everyone else's stuff is radioactive!

Sun, 01/26/2014 - 22:46 | Link to Comment westboundnup
westboundnup's picture

The last 2 toyotas I bought were assembled in Japan. 

Sun, 01/26/2014 - 22:56 | Link to Comment SilverDOG
SilverDOG's picture

Reduce exposure;... skip SUSHI for a couple 100,000 yrs.

Sun, 01/26/2014 - 22:30 | Link to Comment monopoly
monopoly's picture

So, its not all better like they said. Who would have known?

Sun, 01/26/2014 - 22:36 | Link to Comment ebworthen
ebworthen's picture

Main message:  Central Banking doesn't work.

They're screwed as far as exports to China, and they make most of their cars in Kentucky.

Jesus wept.

Sun, 01/26/2014 - 22:41 | Link to Comment Pareto
Pareto's picture

If Keynes were alive, he'd say: For fuck sakes, this is not what I said, and its not what I meant....at all!

Sun, 01/26/2014 - 22:55 | Link to Comment Yen Cross
Yen Cross's picture

  Quit barking and start biting Bitchez!   Pareto

Sun, 01/26/2014 - 22:54 | Link to Comment OC Sure
OC Sure's picture

Too bad his legacy still lives.

Sun, 01/26/2014 - 22:58 | Link to Comment TruthInSunshine
TruthInSunshine's picture

If Keynes were alive, he's slap Krugman with a billion USD libel/slander lawsuit, and probably also stab him in the throat with a fountain pen.

Sun, 01/26/2014 - 22:53 | Link to Comment Pig Circus
Pig Circus's picture

The day the stock and bond market sell off in tantum is the day when the shit really hits the fan. As if the yapper 10 year or our ten year is "safety".

Sun, 01/26/2014 - 23:02 | Link to Comment Billy Shears
Billy Shears's picture

Burn baby, burn!

Sun, 01/26/2014 - 23:02 | Link to Comment darkpool2
darkpool2's picture

Ok, lets see how many currency " adjustments" we get over the New Year holidays......there are a few that are sorely needed if those countries wish to mainatin their export models ( and import displacement incentives)......here's looking at you *******

Mon, 01/27/2014 - 00:35 | Link to Comment The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Ponzi Scheme is coming un fucking glued.

Mon, 01/27/2014 - 01:00 | Link to Comment cnhedge3
cnhedge3's picture

Ok, lets see how many currency " adjustments" we get over the New Year holidays.

http://www.cnhedge.com/portal.php

Mon, 01/27/2014 - 01:16 | Link to Comment Spungo
Spungo's picture

"Kyle Bass must be pulling his last 3 hairs out."

He'll just take his pants off when he runs out.

Mon, 01/27/2014 - 08:53 | Link to Comment AdvancingTime
AdvancingTime's picture

If investors in Japan's government bonds begin to believe that Abenomics will be successful in dropping the value of the yen and in bringing back inflation it would be logical for owners of  JGBs to move out of the securities and buy foreign bonds or equities. That would place upward pressure on Japanese bond yields and raise the cost of government to service its massive debt. With the BOJ  set to absorb half of the government bonds planned for sale this fiscal year, domestic investors have already started venturing overseas for higher yielding assets. If this turns in to a tsunami of  money fleeing Japan it will constitute the end of the line for those holding both JGBs and the yen. More in the post below,

http://brucewilds.blogspot.com/2013/08/japans-economy-going-forward.html

Tue, 01/28/2014 - 06:18 | Link to Comment NipponMarketBlog
NipponMarketBlog's picture

 

 

For a closer look at Japanese trade data, and musings about the wider implications for the japanese economy, please see this piece:

http://nipponmarketblog.wordpress.com/2014/01/28/japanese-trade-balance-...

Do NOT follow this link or you will be banned from the site!