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Japanese 10Y Yield Drops To Record Low; 2s Sell Subzero After BOJ Indirectly Buys Record Foreign Stocks
While the rest of the world was preparing to celebrate Christmas, China was busy easing its economy into growth, and its stock market into low earth orbit, by lowering non-bank deposit reserve rates to zero as reported previously, while Japan was enjoying the consequences of the BOJ monetizing 100% of all gross JGB issuance, when overnight the Japanese Ministry of Finance not only sold $22 billion in 2 Year paper at a negative yield of -0.003%: the first time ever a government note (not bill) has sold at a negative yield, but the Japanese 10 Year yield dropped to 0.31%, declining below the previously all time low hit on April 2013 when the BOJ first announced its unprecedented QE program.
While negative auction yields have moved steadily along the Japanese yield curve, with three-month and one-year bills already sold at sub-zero yields earlier this year, the relentless surge in bond prices, and tumble in yields, merely confirms what we said recently: the global shortage of high quality collateral (set to get 20% worse in 2015) will wreak havoc with the central-planners' intention to boost yields in "confirmation" that a reflationary recovery has taken place.
Case in point: as Reuters reminds us, in Europe, the two-year German bund yield has spent most of its time since August beneath zero, while in the Swiss government debt market even the five-year yield has gone negative.
At this point it is probably worth updating the chart showing how many billions in European Treasury debt trade at negative yield. Ironically, the bond market is now so broken that Japanese yields, already at record lows, are actually higher than matching maturities in many European countries.
So what is causing this market distortion? Why the BOJ of course. Recall that as we showed previously, following its latest QE expansion the BOJ is set to monetize all gross issuance in 2015.
But it is not just gross issuance: the BOJ is also buying up existing bonds from the private market, i.e., the infamous POMO pathway, which means that all the BOJ is doing is enabling the purchases of other securities from those it buys bonds from (at a markup since the BOJ is completely cost-insensitive).
So what really is the BOJ buying? For the answer we go to the latest Japanese flow of funds report in which we find that Japanese pension funds bought 2.21 trillion ($18.6b) yen of overseas securities in the third quarter, the most on record dating back to 1998: a more than sevenfold increase from Q2.
They did this because at the same time, they sold 2.85 trillion yen of JGBs in the three months ended Sept. 30, an all-time high and twice as much in 2Q, to whom? Why the BOJ of course. And not only did they sell it, they made a killing because as the plunging yield indicates, the BOJ keeps lifting the bid for the price it will pay for any JGB paper across the curve.
In other words, the BOJ just bought, indirectly, a record amount of foreign stocks. We hope it is now clear why Goldman, Krugman and the entire Keynesian brigade have been urging Abe to continue with his destructive policies until the bitter end.
And as long Japan's rates keep going lower courtesy of the relentess BOJ bid, global equities will keep rising: after all that is the whole premise of a fungible, globalized monetary system in which it no longer matters if the Fed, or the BOJ, or the ECB is doing the monetization.
But how does this ridiculous Keynesian "perpetual engine" of stock market growth end? We have made our opinion quite clear on the topic over the past 2 years, so instead we will hand the mic over to Blackrock:
being bullish on Japanese equities has become somewhat mainstream in the last two years. Foreign investors dominate trading, with a 60% share of volume on the Tokyo Stock Exchange. A loss of confidence in Abenomics could cause market gyrations. Reforms to develop a stronger equity culture would reduce Japan’s vulnerability to the mood swings of global investors, but this will take time.
The BOJ is playing with fire. What if the central bank actually succeeds and inflation starts to take off quickly? The nightmare scenario would be a spike in JGB rates leading to a fiscal crisis. Japan’s public debt load stands at almost 250% of GDP, according to the IMF, the highest in the G7.
Which also "explains" why Japan has the lowest 10-Year yield too...
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The old "monetizing your debt to prosperity" trick, eh? Fails every time. Japan is so fucked. Japan leads the way.
Martin Armstrong called it, and it's happening: private money is being driven out of government bonds, and into the stock markets. Since the US stock markets are the largest and most liquid, that's where the money is going.
So how is this not the death of currency? How is it any different to be forced into buying stocks than it would be any other currency or commodity? The stock market is rising on an influx of currencies from around the world, all deliberately being debased simultaneously. Even commodities like oil or copper are falling in value, just like flat screen TVs, as demand is falling. Are we watching our savings, our "capital" being here's into another fiat currency called stocks? If people are using their cash to buy these stocks, who is selling them and what are they doing with their cash from these sales? It looks like we are being herded into a killing pen. Are they holding this cash back to deliberately induce deflation driving the cash price of commodities lower and once they have all the "sideline" cash in the stock market, they can use their horded cash to buy up commodities for pennies when it all craps? Are bonds the safe havens they are holding their cash in? Even at negative interest rates, the rate of collapse of real assets may decline substantially faster. I'm holding cash and will not buy stock. Are bonds the smart place to be? At first glance they seem foolish with their yield, but if one believes this will collapse into deflation, it may just not be so dumb. If we are truly living in a government tyranny, gold would seem a bad bet as long as they can control us with force. They would support their bonds to the end of time if they wanted to stay in power.
Confused?
no, they just trying to live another day
Confused? No not me.
The CBer's have no fucking idea what they are doing. They are just trying some of this, then they will try some of that and then this again, for as long as they can keep things a float. Until they can't and then it ends quickly, violently and nobody knows how it ends and what comes of it. And if anyone tells you they do they are just trying to steal your money too.
While negative auction yields have moved steadily along the Japanese yield curve, with three-month and one-year bills already sold at sub-zero yields earlier this year, the relentless surge in bond prices, and tumble in yields, merely confirms what we said recently: the global shortage of high quality collateral (set to get 20% worse in 2015) will wreak havoc with the central-planners' intention to boost yields in "confirmation" that a reflationary recovery has taken place.
This is deflationary but they are herding Japanese pension money into the US market.How did you get out of the Forbidden Zone?
Well at least the short sellers now know who they have been trading against. Talk about "time for an audit." Let me guess, Facebook...Netflix...Amazon...Twitter. No wonder they paid 20 plus billion for Jim Beam. They're gonna need that and a whole lot more...
Surely the 10Y yield is riggable. These eastern people of the Pacific are fucking amateurs.
So the rest of the 'developed world' has to jump in when Japan blows up. Because Abe's diarrhea is all over the DAX, the S&P, Greek bonds and iShares.
The Federal Reserve's game plan is to own everything with infinte printed dollars.
A new twist on the old communist model. Say it's a free market when it's not. A state owned and controlled economy.
With Fukushima, an aging population, fierce competition from China and S. Korea, Japan has hardly anything going for it that will reduce its 250% debt to GDP. So eventually Japanese bonds will be worth nothing either through default or through hyperinflation.
But everyone now pretends that infinite QE means that Japanese bonds merit virtually zero interest rates. The Yen has lost 14% since the middle of October and yet interest rates are near zero. That is sheer insanity and cannot last for long.
So if the govt sells the debt, what does it do with the money? It can't sterilize the purchases and the money spent by govt should by rights be inflationary. What about those who sell the stocks at inflated prices, what do they do with the money from the stock sales? Bank accounts yield negative rates as does sovereign debt so then what is left to do with the money other than let it devalue or purchase things with it and that is where the inflation genie will get out of the bottle. The fewer shares of stock there are to purchase, the higher valuations rise and the more money comes back to the previous holders of stocks who are selling.
The debt is worthless and besides the BOJ or a Japanese bank required to hold for collateral nobody in their right mind should be holding it. The BOJ cannot offer for sale. If they did the price would drop to zero immediately in an open and free market as Japan has no way to pay any interest.
At some point the BOJ will "own" all Japanese debt which they receive no net interest on anyways. The debt will essentially be forgiven and completely wiped out. The problem is, the BOJ will buy all outstanding Japanese debt with Yen which theoretically should be worthless at that point. All debts denominated in Yen will be worthless as well. That means all bank assets in the form of loans or bonds go to zero. Savings, checking and equivalents worth zero as well.
The reality is that nearly all if not every "developed" country's government is bankrupt. QE is simply a form of bankruptcy.
Fucked up as it ever was
Ain't money fun??
Funny how so few get it; so few see what is happening in front of their face. The BOJ is a small group of civil servants with a "theoretical" but all too real balance sheet as follows:assets of trillions of yen denominated Jap Gov't bonds; but no liabilities (none for all of the currency they have sent out into the world) ecept for ink and paper. When they own 95-100% of all of the japaneses bonds - they cancerl them. Only effect is watered Yen = good for an exporter. At that point the Yen wii be proclaimed as the currency of a debt free AAA country = screams higher against the dollar and competing currencies. Domestically they stole the older genrations savings and gave it back in form of government handouts for the poor. The young are happy - they have a diluted but "strong" currency because it has stabilized. The young adjust, the old die off. Who paid? And who plays?
Now here is the real secret disclosed:
1. historically if one country tried this it failed miserably - the others often took advantage
2. but if almost all countries are on this path at the same time - somewhere on the path - there will be no one to actually complain.
3. buying up your own debt with cheapened and cheaper and cheaper (devalued)....money is as old as governments - old as the hills.
Japan,
Implode already!
Your Yen garbage is stinking up the joint.
Like 6 month old sushi.
I've mentioned several times over the last several months that Japan (BOJ) is washing yen that can't be monitized in Japan, in global equity markets.
Typically these statistics are 2nd tier, in markets with price discovery. It's not a matter of if, but rather when, the wheels come off Japan's cart.
You have front row seats to an epic battle.
Central banks are fighting literally for your life. They are fighting to attempt to delay the total collapse of civilization as we know it.
Recall Bernanke's parting words which were essentially 'You all hate me --- but once you understand the reasons for why I did what I did --- you will THANK me'
There are only two articles you need to read to clear the confusion:
HIGH PRICED OIL DESTROYS GROWTH
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
Nothing, I repeat, NOTHING else matters. The disease is the end of cheap and easily extractable oil. And that means growth ends.
QE, ZIRP, subprime, central bank manipulation of gold, stocks, bonds, property --- these are desperate attempts to counter the shock of the jump in the price of oil which started in 2001. You will note that when oil pushed over $35 that was the beginning of the low interest rate policy and the housing bubble.
These were not mistakes -- they were the first salvos fired to offset the impact of higher priced oil on growth.
And as we have seen, the 'medicine' we use to fight off the end of growth has increasingly toxic side-effects because we have to apply much higher doses.
Enjoy the rather short life you have left. Because when the Fed's policies start pushing on a string.
YOU ARE DEAD (or if you are one of the few that survive, you will wish you were dead)