Japan's Kokusai Liquidates Remainder Of Euro Sovereign Exposure, Just As European Primary Issuance Supply Surges

Tyler Durden's picture

When we discussed the specifics of the ongoing European bank run, we cited from the NYT which noted the actions of a core Japanese mutual fund with European sovereign exposure, namely that "earlier this month, Kokusai Asset Management in Japan unloaded nearly $1 billion in Italian debt." The Nikkei has just reported that this was merely the beginning: "Kokusai Asset Management Co. has sold all Spanish and Belgian government bonds that were part of its flagship fund, Global Sovereign Open, The Nikkei learned Monday. As of Nov. 10, Spanish and Belgian bonds accounted for 1.8% and 3.1% of the fund, respectively. The share of the bonds in the fund's portfolio fell to zero as of Thursday." Just what prompted this drastic move and very loud slap in the face of the European confidence building exercise? "A Kokusai Asset Management official said the company sold off the bonds, amid widespread concerns about the outlook for Europe's sovereign debt crisis to avoid hurting the value of the fund, given volatile prices of the bonds. The mutual fund operator had already divested the fund of all its French government bonds in October and all Italian bonds in early November." It is safe to say that where one core asset managers has been (and no longer is), everyone else will shortly follow. For the simple reason that it is now if not cool to not have European exposure, it is certainly required by one's LPs to cut down on all European bonds. Kokusai is merely the canary: expect everyone else to go ahead and dump the €741 billion in non-domestically held Italian (and then all other European sovereigns) bonds. Good luck ECB buying these in the secondary market. And one market where the ECB can do nothing by charter, is the primary issuance one, where as the following update from Morgan Stanley shows, things are getting from from bad to worse.

Issuance between now and year-end


A near-term silver lining for many countries is that their 2011 bond issuance programmes are drawing to a close in many cases (see Exhibit 4). France, Netherlands and Portugal have all completed their bond issuance programmes. However, Germany, Italy and Spain still have a fair way to go. In 2012, of course, bond issuance will have to resume.

In the meantime, there is still quite a lot of T- bill and bond supply coming up before year-end (Exhibit 5). The week of the 28 November will be a heavy  upply week; with issuance from Belgium, Italy, France and Spain. If the pattern of worsening auctions persisted, it would be very bad news for euro area sovereigns, in our view.


And if, IF, Europe somehow finds a buyer for all of this stuff even as all other prudent asset managers are mimicking the Tesoro and selling on their own...then we get 2012, where things go from bad to worse to truly surreal - sorry Jim O'Neill, but in this case your astonishment would be perfectly valid.

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phungus_mungus's picture

Looks like all the chickens are starting to come home to roost

trav7777's picture

WTF did the PIIGS expect when the cheating cashflow swaps they executed during EU accession came due?

paarsons's picture

Trust me.

Europe will still get Asian money.

This is mutually assured economic destruction.

In order to keep the Ponzi going, ALL must participate.


Spitzer's picture

When is the last time Japan did something right ? macro economically ?

If Japan is selling Euro's, the bottom is in.

Im going long...

Fish Gone Bad's picture

Q: What did the hand say to the face?

A: Slap!!!!

homersimpson's picture

Why do Western folks assume Eastern folks are stupid?

Have you ever tried to part a Chinese dude with his dollar? Odds are he'll hold it tighter than you can pull it..

In other words, you have a better chance of finding gold in your backyard than China/Japan bailing out Europe.

Citxmech's picture

I wanna know who bought that shit.  =o

lolmao500's picture

Why do Western folks assume Eastern folks are stupid?

Mmm might be the FACT that Japan and China hold more then 2 trillion of crappy US debt? That Japan's economy has been going bad for the last 20 years? That China's economy is as big a ponzi scheme as the US economy? (maybe even bigger)

malek's picture

Well at least for China it was likely an accepted trade-off for getting production capacity built up and running in their country by western companies...

bigun's picture

drop it like its hot!!!!!!!!!~~~

rufusbird's picture

"I guess she don't like the cornbread neither!"

Michael's picture

pm, Did you hear the Chinese housing bubble bust is accelerating. 17 of 70 major cities prices down in September and 34 of 70 major cities prices down in October or something close to that. Once a mega housing bubble starts to burst, there's no stopping it. Trust me.

Zero Govt's picture

the sugar coating was sweet, all that AAA rated gloss, just took a while to realise they'd bought a turd dumped by politicians who are by far the least trustworthy people in world history

How's Americas Super Committee getting on making cuts to repay all their debtors as they promised? ...Oh they've renaged... shock-horror surprise we're all simply fuking stunned

...and Nancy Peloski-Trotski had donned her cape and spandex tights too promising $4 Trillion of cuts and didn't manage $4 Dollars! She's so disapointed she had to take her taxpayer funded Gulfstream back to SanFran (the publicly subsidised buses and trains not for her then ...some pigs on Animal Farm are more equal than others obviously)

Golden Boy's picture

I'm tired of the foreplay. I want to see some "fuck the creditors in the ass" defaults.

Golden Boy's picture

Let me guess. You're long the recovery and short the hyperinflationary holocaust that is 100% sure to come.

JPM Hater001's picture

I can help him...or her...whatever

Now I lay you down so deep

Fuck you and ben you banker creep

Let bond and blunder plague your day

Until someone comes with a gun your way.


lincolnsteffens's picture

+++Thanks for the late night laugh!!!

OldPhart's picture

It doesn't accept negative numbers.

daily bread's picture

It will if you are in the 1%.

Vlad Tepid's picture

I like that they take a credit card. How apropos.

Osmium's picture

Don't sugar coat it, tell us how you really feel  :)

Ineverslice's picture

Hear, hear!!! And yes, I need all the help I can get when I can git it.

1a2b3c4d's picture

The only question left is: how do I make money off of this?

LowProfile's picture

Starts with g and ends with d.

Neidhammel's picture

Very close. Solution is praying to GOD for guidance.

homersimpson's picture

The one that doesn't appear when you smoke something.

Hearst's picture

The God who raised Jesus from the dead.

StychoKiller's picture

Kali!  What is thy bidding, my Mistress?

Kali's picture

Lol!  PREPARE!  The Kali Yuga is upon us!

And smyte these damn jesus freaks with no sense of humor.  Please.

homersimpson's picture

FAZ does the job well, too, if you can take the beating from time to time.

williambanzai7's picture

My favorite Japanese business expression: It is very difficult.

Just say musokashi na ten times and you get the idea.

chindit13's picture

Taihen da ne!

By the way, Kokusai is a survivor, so canary---or bellwether---is an apt term.

Seasmoke's picture

RUN, do not walk , to the exits

kito's picture

No worries!!!! The messiah has been elected in spain!!!! Euro rally will be strong!!!!

Beam Me Up Scotty's picture

Obama got elected in Spain now too??

StychoKiller's picture

I fail to understand how Spanish voters came to the conclusion that electing conservatives to Govt can fix Socialist-caused problems AND maintain Socialist programs for pensions and guaranteed Govt jobs -- WTF??

Mentaliusanything's picture

$741 Billion needs to find a willing Buyer. Now let me think, who will be the Patsy that ends up owning that pigs shite.

There is not enough existing Fiat attached to brain dead Sovereigns to cover that amount. ECB can't do it and the locals are tapped out. Where do you find a lazy three quarters of a $Trillion. Even the US Feds would find it hard to stump up this amount

I have a feeling its ECB printing time or else its Tits up for the European Union.

Even a circle jerk comes to an exhausted end

Don't you Love Bond vigilantes


Kali's picture

I would like to give props to Knukles while I am popping more popcorn.  You are right, this is it, we are in the meltdown now.  It will only increase in speed and intensity from here on out.  If you haven't already, better finish making your last minute preps, time is out.

Zero Govt's picture

i've a terrible feeling the delusional retards will drag it out longer than we can imagine (or stand!)

Ghordius's picture

me too - my expectation is around two years

and then it will come like a thief in the night

sitenine's picture

Anybody giving odds on unplanned issuances?

monopoly's picture

When this train stops and all get off. Look out. How can you just own dollars. Makes 0 sense to me.

Mike2756's picture

And when this unwinds, what happens to the yen?