mlsoft..Ditto. I am in 100% agreement with you on Japan. A cave in of the JGB's is HUGE trouble for Japan and us. They will liquidate their UST's in a flash to shore up their own countries trouble and ignite our bond bubble.
NEW YORK -- The dramatic selling of Japanese government bonds is again spilling over into other global sovereign debt markets Thursday, triggering more speculation on whether the great global bull run in bonds might have come to a resounding halt.
The slump in the Japanese bond market, the world's largest, has been deep and striking, with the benchmark 10-year bond seeing its largest one-day selloff Thursday since late 1998. The yield, which moves inversely to price, jumped 22 basis points in one day to 1.12%, the highest level since October and nearly tripling the record low of 0.43% seen as recently as June 11.
The particular catalyst Thursday appeared to be a poorly received Y1.494 trillion 10-year JGB auction, on the heels of a similarly received 20-year JGB auction last month.
But, the steady and persistent selling in Japan is fueling the sale of other government debt around the world, both for psychological and practical reasons. Not only are Japanese investors, who have been active buyers of foreign debt, beginning to sell their holdings to move to higher-yielding assets such as equities, but the surge in JGB yields is changing the arbitrage dynamics in global bonds, forcing leveraged investors like hedge funds to sell.
"I think we are at a major threshold in bond markets right now," said Brian Edmonds, global head of U.S. Treasury trading at Banc of America Securities in New York.
Even though the U.S. Treasury market still benefits from demand from some domestic investors, notably mortgage-backed securities holders and issuers, the market is getting hammered by foreign selling, Edmonds said.
If there's a theme rippling across global debt markets, it appears to be that a spate of interest rate cuts and other forms of stimulus will start to lift global growth during the second half of the year. The stumble in the bond markets -- and in particular a drop in interest in new auctions not only in Japan, but in Germany and the U.K. -- also underscores the fact that many investors have reached saturation point with their bond holdings and are beginning to contemplate switching into equity markets.
The fact that Japanese investors are selling some overseas holdings is feeding a vicious global bond market cycle. This shift is evident in the latest statistics from Japan's Ministry of Finance, that show domestic investors sold a total of $9.9 billion of foreign bonds in the week ended June 27, compared with a smaller net sale of $3.6 billion in the prior week and a complete turnabout from the week of June 13, when they were net buyers of about $9.4 billion foreign bonds.
Ciaran O'Hagan, global bond strategist at Lehman Brothers in London, called the change of strategy "stunning" and said heavy selling continued this week.
AI
