JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit) but two words spring to mind - not orderly. It seems the pendulum of 'inflation repricing channel through the JPY' has begun to swing back towards the JGB market - not what Abe and his cohorts would have hoped for given the deluge of monetization they are up to. As we originally discussed here [5], the inflation expectations can be spread across bonds or FX and just as we saw in 2007, 2008, and 2011, the initial burst takes place in one market and the normalizes as the other catches up. In this case it was a massive devaluation of the JPY that is now being 'caught up' to by the JGB yields rising. 5Y JGB yields just topped 40bps (from a 9.9bps low on March 5th!!) and their highest since July 2011. Of course, the problem with rising rates is the burden it puts on the government as cost-of-debt accelerates beyond tax revenues with negative trade balances; and if the JGB channel is now 'inflation security of choice' then JPY devaluation will take a back seat (and so will JPY carry trades driving risk-on around the world - as we noted here [6]). And as if that wasn't all exciting enough, Japanese Machine Tool Orders re-accelerated to the downside -24.1% YoY (worst since January).
JGB Futures avoid a third halt in three days by 1 tick (drop 0.99 vs 1.00 handle limit) but two words spring to mind - not orderly. Both times JGBs approached the -1.00 level, a miraculous JPY selling pressure appeared (stealing the devaluation/inflationary thunder) and the bonds rallied modestly off their lows...
[7]
now with price at one-year lows...having seen the biggest 3-day drop since Lehman...
[8]
Inflation expectations priced into USDJPY first this time - but just as we saw in 2007, 2008, and 2011, it doesn't take long for the other 'channel' to catch up...
[9]
and since the BoJ meeting, yields across the curve are surging...
[10]
Charts: Bloomberg