JGB Futures prices are dropping in a manner eerily reminiscent of the May period of debacle before the BoJ started to regain control. The catalyst for today's biggest bond price drop in 3 months is Takatoshi Ito's comments demanding the Government Pension fund starting greatly rotating from bonds to stocks:
- "Now is the right time to sell, while the BOJ is buying.”
- *JAPAN'S GPIF NEEDS TO START SELLING BONDS NOW, ITO SAYS
- *GPIF SHOULD REDUCE LOCAL BONDS TO AS LITTLE AS 35%, ITO SAYS
- *GPIF SHOULD RAISE JAPAN STOCK HOLDINGS TO 18% NOW, ITO SAYS
Stocks bounced higher initially but are losing most of those gains as bonds hit low prices of the session (and fears re-arise that the BoJ is not in total control after all). As we warned before, the JGB market is "dead" for all intent and purpose and there is simply not enough liquidity to support any significant selling pressure. [6] JGB 10Y Yields are the highest since Oct 1st.
"If inflation reaches 2 percent, and yields rise to 3 percent, and then they start trying to sell domestic bonds, we’ll see disaster in the markets,” Ito said.
But, as Bloomberg reports,
“Mr. Ito clearly has the ear of the Prime Minister, which perhaps means that over a period of time, his views will prevail,” said Jonathan Allum, a strategist for SMBC Nikko Capital Markets Ltd., in a telephone interview from London. “But Mr. Mitani is the man that actually runs GPIF and it doesn’t look like he is very keen to change things any time soon.”
JGBs starting to look a lot like May's debacle...
[7]
and intrday as the Nikkei collapses so bonds are now following suit...
[8]
More to come?
[9]
It's deja vu all over again as we have suffered weeks of daily jawboning the JPY lower (and stocks higher) and now comes the JGB Halts...