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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holdbuysell's picture

Fukushima was the mortal blow.

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

Muppet Pimp's picture

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




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.

suteibu's picture

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

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.

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.

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...

Matt's picture

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

denverdolomte's picture

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

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.

climber's picture

Wait so if QE was modeled after Abenomics... 

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.

ultimate warrior's picture

Deficits don't matter.

-Lord Krugman

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.

syntaxterror's picture

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

wisehiney's picture

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

OC Sure's picture

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

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. 

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.

wisehiney's picture

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

headscratcher? puzzlement? perplexer? enigma-rator?

wisehiney's picture


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.

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.

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. 

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?

wisehiney's picture

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

syntaxterror's picture

Money changers' gonna profit, right boss?

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. ?

FuzzyDunlop21's picture

do you want your car to glow in the dark?

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.

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!

westboundnup's picture

The last 2 toyotas I bought were assembled in Japan. 

SilverDOG's picture

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

monopoly's picture

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

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.

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!

Yen Cross's picture

  Quit barking and start biting Bitchez!   Pareto

OC Sure's picture

Too bad his legacy still lives.

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.

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".

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 *******

The_Ungrateful_Yid's picture

Ponzi Scheme is coming un fucking glued.

cnhedge3's picture

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