BOJ Offers To Buy Unlimited Bonds After Bizarre Delay As Yield Surge

While traders' attentions were as usual focused on the latest developments in China last night, around 9pm ET we pointed out that the real action was taking place in Japan, where the 10Y yield had blown out beyond the BOJ's designated range of 0.00%-0.10%...

... and had even crossed into the range above 0.11% where the BOJ traditionally launches its Fixed Rate Operation, also known as Unlimited Buying of JGBs beyond a given rate, something it did most recently on Monday morning (after a 7 month hiatus) when JGB yields also blew out sharply.

Which is why we were wondering when the BOJ would announce the latest "unlimited buying" operation to defend Japanese bonds from a further rout.

And it wasn't just us: so were all bond traders and central bank watchers, and yet the hours passed and still nothing from Kuroda.

Then, finally, just around 1am ET or 4 hours after the rout had started, the BOJ couldn't take it any more and announced the long overdue fixed-rate operation for the second time in 5 days after the 10-year yield rose to its highest level in more than a year.

While the BOJ's latest intervention resulted in a lot of relieved traders as the lack of any intervention almost convinced markets that Kuroda was willing to let the long end JGBs "slide", there was a difference: this BOJ offered to buy 10-year debt at 0.10% vs 0.11% at its previous operations. And also unlike Monday's operation, today the central bank actually did end up buying some 94BN yen worth of 10-year bonds.

Commenting on the latest central bank intervention to prevent a bond market crash, BofA's chief Japan rates strategist Shuichi Ohsaki, said that "the BOJ probably wanted to demonstrate its capacity to be flexible by lowering the yield of its fixed-rate operation to 0.1% from 0.11%."

He also noted that this move makes it likely there’ll be a tweak at next week’s BOJ meeting, and added that the "BOJ wants to send a message that the level for fixed- rate operation isn’t set in concrete."

Others chimed in: "The operation is meant to cap the rise in yields and will help to weaken the yen," said Daiwa FX strategist Yuji Kameoka. Still, “the yen is unlikely to fall much, given policy doesn’t change until the BOJ’s meeting next week."

"By offering to buy an unlimited amount of bonds at 0.10% in Friday’s fixed-rate operation, the BOJ is showing resolve to contain the rise in the 10-year yield, while also signaling its willingness to be flexible", said Takenobu Nakashima, quantitative strategist at Nomura Securities in Tokyo.

If it had offered at 0.11% today, it wouldn’t have sent the message about flexibility; if the fixed rate was set as 0.12%, it would have given the impression the BOJ will let yields rise.

Whatever the BOJ's motive for a) being so very late to intervene and b) changing the parameters of the fixed-rate operation, the real question is what this means for next week's BOJ announcement. And if the sharp spike in JGB vol is any indication, then Kuroda may be preparing to finally let the market take control over the world's most zombie instrument: Japan's bond market. If that is indeed the case, watch out, as true price discovery in this "market" hasn't happened in several years, and if Kuroda is not careful, the Kyle Bass short JGB "widow-maker" trade may soon be better known as "billionaire-maker"...


1 Alabama Four Stop Fri, 07/27/2018 - 07:16 Permalink

ton of money over there sitting on the sidelines ready to jump the bond band wagon, and if ya didnt notice, our 10 year is linked closely to theirs and magnified.

Do not act on what I say, act on what i do, is the new rule among the chiefs, should break the back of the mains though

In reply to by Four Stop

MK ULTRA Alpha Mouldy Fri, 07/27/2018 - 08:01 Permalink

It means Japan is undercutting the US Fed by devaluing it's money to make it's products cheaper for the US market. It also means the "Carry Trade" has been given a new lease on life.

US tightens first, then EU said by next year we'll tighten and China, well it's looks like a huge devaluation by flooding their economy with newly printed Yuan.

It's means gold and silver will drop in value. Each time the Yuan has traded below it's controlled range, silver takes a hit. I only follow silver, but gold would be tracking silver.

A ZH poster who holds a lot of silver attacked me viciously about my prediction silver would move into the $14 range, well at that time, it was high $16. The other day, about a week when Chinese Yuan dropped outside it's controlled range, silver dropped hard.

It almost made it to $14 range, it's in low $15 now.

A crashing Yuan is the People's Bank of China's greatest fear, because it means capital flight. It means $2 trillion will flow West and into Australia.(the PBOC made the promise to it's people, the Yuan would remain in the protected sanctioned controlled range, now they're printing because they must have growth to pay off debt in dollars, foreign loans must be paid in dollars. This was a broken promise and people are getting their money out. The crack down ordered by Xi over capital flight and corruption hasn't slowed capital flight and hasn't slowed corruption in loans and everything else, all numbers coming out of China are false numbers.)

Chinese hold precious metals to hold value, I speculate the price of gold and silver is dropping because Chinese are dumping all forms of monetary instruments and precious metals to get their money out. A new source of silver has shown up in India, tonnes and tonnes of silver. It was reported India is in a buying frenzy for silver.

I believe the new unlimited source of silver is China.

In reply to by Mouldy

Stan Smith Fri, 07/27/2018 - 07:43 Permalink

    We're all socialists at this point.    At least if your paying taxes you are.


    Bonds here, bonds there.   Eventually it's all just dust in the wind.

Let it Go Fri, 07/27/2018 - 08:21 Permalink

I remain amazed  that many people still consider the Japanese yen a "safe haven" currency. This flies in the face of reason. For years many economist have looked at Japans economic path and predicted an economic crisis brought on by the growing debt of its government. The reality is that much like the situation that developed in Greece it is clear that Japan is facing a wall of debt that it will never be able to repay.

The myth promoted by the central banks that a major currency cannot fail is accepted as fact by many people however, the rapid demise of either the yen or the euro is all that will be needed to reveal the truth and remind people everywhere that our system of fiat money is held together only by faith in the system and a prayer. Below is an article making the case the yen is destined to fail.

 http://The Yen And Its Failure To Fail.html

Idiocracy's Not Sure Fri, 07/27/2018 - 08:22 Permalink

central banks only have to purchase their own bond if they have been acting completely recklessly in violation of all moral and legal standards, and it is most unfortunate that the average person is too stupid to understand the nature of the beast. now go pay your taxes because clearly they don't need the money

Davidduke2000 Fri, 07/27/2018 - 09:01 Permalink

Even when I was a kid and playing monopoly with my siblings, when I offered to take extra cash by issuing a note IOU, they kicked me out of the game, they called it cheating. yet these are countries cheating by the $$ trillions and nobody is bothered.

U4 eee aaa Fri, 07/27/2018 - 09:10 Permalink

Needed to change the cartridge on the printer. They didn't have the right one so someone had to run down to staples to get a new one.

That was why they delayed

To Hell In A H… Fri, 07/27/2018 - 09:15 Permalink

Only a chronically rigged to its gills, FOREX market could give the Yen any worth. Some countries can discard economic and fiscal responsibility and nothing happens to their currency while drowning in debt.

While other countries who don’t see “eye to eye” with the *international order* can carry far less debt and their currencies get sodomized by the so-called international markets.

It’s pure fucking bullshit and gold along with crypto, will smash this Wall Street, City of London, Jew bucks bullshit once and for all. Fucks the Japs and fuck any nation accepting the Yen. Japan the master money printers are bust. Products too expensive to purchase. Simply not competitive.

A new financial dawn is going to be a rude awakening for many nations. Too many favoured nations have been living a fucking financial lie and it’s unraveling. Bring it on.

hanekhw Fri, 07/27/2018 - 11:37 Permalink

Well, it'll be back to paper houses and rice with fish sauce for them. Well be seeing more of people carrying two baskets balanced on their bearer poles and rickshaw boys loitering around waiting for a fare.

Balance-Sheet Fri, 07/27/2018 - 11:55 Permalink

There are way, way too many people employed in Finance and flipping bonds around the room trying to make a living so they have to be fired and their function replaced entirely by computers who aren't just acting as crazed gamblers.

Herdee Fri, 07/27/2018 - 13:26 Permalink

It's no accident,coordinated moves ans strategies by Central Banks take part in concert together. It's turned into a game of musical chairs in order to keep up the current ponzi monetary system. The current system by the way is dependent on the exponential growth of credit and debt. What does that translate into? It's endless wars, environmental destruction, crime, social problems, you name it. Tell me what's going to happen to the economic ponzi when the world population doubles soon?