Yeah, I know, I know, the central bankers are "under control."
Uh huh.
This is why the 10 year JGB, Japanese 10 year bond rates, traded in a range that was, well, ridiculous.
But here's the real problem:
That's fairly easy; it's 1.685% -- annually. In other words if you buy said bonds at that yield you are forfeiting about 20% of your purchasing power, assuming that the BOJ manages to hit its target.
Do you really think that anyone is intentionally burning 20% of their funds? No -- they're wagering the other way -- that the BOJ's actions will fail and the economy will effectively collapse as a consequence.
Now maybe they're right and maybe they're wrong, but with 2% inflation the 10y yield must exceed that in order to provide any sort of actual return, and the magnitude of the moves down at the current level tell you what sort of catfight is being had in terms of beliefs.
The dumb money piled into Japanese equities, just as it has in US equities and almost-certainly under the same rubric -- "there's nowhere else to go."
Uh huh. That's what the cattle say as they are forced into the chute -- it'll all be ok, there's nowhere else to go.
What's waiting at the other end of that chute?
Uh huh.
This is why the 10 year JGB, Japanese 10 year bond rates, traded in a range that was, well, ridiculous.
But here's the real problem:
The BOJ said it will double the monetary base by the end of 2014 through purchases of government bonds, in Japan’s biggest-ever round of asset purchases. Ten-year Japanese government bond yields fell to a record low of 0.315 percent, the yen plunged by the most in 1 1/2 years against the dollar and stocks rallied to a 4 1/2-year high, as investors expect Kuroda to revive an economy beset by prices stuck at 1992 levels.So if the BOJ thinks it can make inflation go to 2%, what is the embedded loss in that 10y bond?
That's fairly easy; it's 1.685% -- annually. In other words if you buy said bonds at that yield you are forfeiting about 20% of your purchasing power, assuming that the BOJ manages to hit its target.
Do you really think that anyone is intentionally burning 20% of their funds? No -- they're wagering the other way -- that the BOJ's actions will fail and the economy will effectively collapse as a consequence.
Now maybe they're right and maybe they're wrong, but with 2% inflation the 10y yield must exceed that in order to provide any sort of actual return, and the magnitude of the moves down at the current level tell you what sort of catfight is being had in terms of beliefs.
The dumb money piled into Japanese equities, just as it has in US equities and almost-certainly under the same rubric -- "there's nowhere else to go."
Uh huh. That's what the cattle say as they are forced into the chute -- it'll all be ok, there's nowhere else to go.
What's waiting at the other end of that chute?
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