Bank Of Japan Unleashes Yield Curve Chaos: JGBs Inverted At Short- And Long-End

Tyler Durden's picture

You know you have 'tinkered' too much in the machincations of what dealers now call a "dead market" when the world's largest sovereign bond market is inverted at the short-end and the long-end. The utter folly of Peter Pan policy has sent 10Y JGB yields below the BoJ's overnight call rate for the first time ever...

Japan’s 10-year bond yield dropped to a record -12.5bps Friday, falling below the the negative deposit rate introduced by the Bank of Japan last month, after the central bank’s operation to buy long-term debt met the lowest investor participation on record. Yields on government debt have tumbled since the BOJ announced Jan. 29 that it would start charging 10bps interest on some deposits held at the bank starting Feb. 16.

40Y Yields are down a stunning 90bps since the BoJ went full retard... to record lows.


AND yields are so low that demand for 40Y JGBs has driven its yield below the 30Y yield by the most ever...


As Bloomberg notes, Japan’s long-term bond yields extended their push to record lows, driven by a shortage as the central bank buys record amounts of securities.

Investors are hoarding the debt because it still pays interest, while shorter maturities have negative yields.


“We’re in a situation where traders have no stock of the bonds,” said Hideo Suzuki, the chief manager of foreign exchange and financial products trading at Tokyo-based Mitsubishi UFJ Trust & Banking Corp.

A double inversion - we are sure just a little more debt monetization and the 'deflation mindset' will be vanquished.

Crucially,  Japanese bond investors are increasingly reluctant to sell their holdings of longer maturities to the central bank as the pool of positive-yielding debt shrinks.

This means, as BNP Paribas warns, that there is a risk that The BoJ’s bond buying operations will fail to meet target this month, Tomohisa Fujiki, chief rates strategist at the bank.

In other words - Kuroda just hit the limit of his lies - any more buying from here and arguing that this is not direct debt monetization is simply folly. And as he reminded the world's investors recently - just like Peter Pan, once you stop believing, monetary policy's effectiveness is destroyed.

We can only imagine the capital controls that are coming...

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Cognitive Dissonance's picture

"We can only imagine the capital controls that are coming..."

Hell hath no fury like a central bank scorned.

<We ain't seen nuttin yet.>

JamesBond's picture

Then expect flight out of yen to the dollar.  No problem going to 140 exchange rate within a months tmie.



NoDebt's picture

The JGB yield curve is irrelevant.  The only people buying them are their own central bank.  Out of the left pocket, into the right.


mtl4's picture

The key here is that the CB won't be able to go on buying as planned because banks simply won't sell their that point it becomes checkmate, thanks for playing (there's not enough corprate paper to keep the whole charade going).  The yen may start rising quite rapidly against the USD as a result.

fxrxexexdxoxmx's picture

Do you really think the Banks will not do what their CB wants them to do? Where are all of these independent banks? It is a coordinated world wide CB cabal. Otherwise currencies in some nations would have failed.

Granted, some nations like Russia, are trying to fight it but so far how is working for them?

And I do not need a  lecture on how President for Life Putin's amazing geopolitical genius and economic wizardry will ultimately save the day, how is the Ruble doing?


Farqued Up's picture

Rubble will turn to Rubies when the top blows off this volcano of corruption known as SWIFT. The negro Congressman may have the last laugh, islands may indeed tip over and sink, Japan may create a giant sucking whirlpool as its ass end points up and it sinks.

BTW, SWIFT itself may or may not be corrupt but it provides the KY to grease the hole.

nicktd's picture

<---japan going helicopter yen first

<---US dollars turning into pesos first

kenny500c's picture

U.S. Treasury yields are going to follow JGBs into the black hole of NIRP, a no-brainer trade if I have ever seen one.

NoWayJose's picture

Same thing with all the bond holders that look at their 10s and 30s that were purchased years ago - sure, they can sell that 6% coupon for a nice gain - but what do they do with the money? Especially after paying a gains tax - do you buy stawks at almost all time highs? Or go back into bonds at zero or negative rates? And if you are insurance, institution, foundation, annuity, or a bond fund - why sell at all?

asteroids's picture

Obviously this stupidity can't go on forever, so, why not take the profit and wait in cash? If NIRP hits, then buy gold.

Caviar Emptor's picture

This is a biflation wet dream!
On the one hand you encourage spending by penalizing savers.
Prices rise.
On the other you crush the time value of money.
Individual net worth sinks.
I think we are reaching escape velocity on this: your buying power will shrink faster, down to a nubbin.
Anyone know how to mend socks?

jm's picture

Average duration on eurozone debt is 7.22 years.

JGB average is 8.3 years.

This is picking up pennies in front of a steamroller.

Big Stapler's picture
Big Stapler (not verified) Mar 22, 2016 10:29 PM

The only thing more stupid than the Bank Of Japan are the fools in the Eccles Building who think this next time will be different.

Send Bernanke and Yellen to prison where they belong.

Flying Wombat's picture

Stranger Than Fiction: The System Is On Full Retard – Dave Kranzler

Zero_Ledge's picture

Monetizing debt is nice and all....  but....

where is the ZH freakout about Ebola??  Are all the ZH'ers still in their bunkers from the last time?


Cutter's picture

They are losing control. And when the entire yield curve is negative, then what? Their only two choices are helicopter drops or deval, either way the yen is going down.

TeraByte's picture

Riding a Dead Horse

Farmer Joe in Brooklyn's picture

Buying long-dated Japanese debt is like picking up pennies in front of a steamroller.

Tick tock, tick tock.

spanish inquisition's picture

If the Japan central bank is so hot to buy worthless paper, I have some old school books and newspapers around they can buy.

Ancientkarma's picture

I was going to buy a Nissan.....should I wait?