JGB Watch: 10 Year Yields Nears Critical Levels, ASEAN Stocks Smashed

Back to my JGB-Japan debt crisis watch.

Yesterday’s fantastic one day 4.94% rebound by the Nikkei erased 3/4 of last week’s 6.51% losses.

Post mortem analysis by the mainstream holds that this has largely been attributed to “strong” 4.1% annual statistical growth—a growth ironically, where capital investments continue to fall.

Some have even attributed (post hoc) the substantial 2.59% bounce in the Phisix stocks to actions in Japan.

The reality is that as pointed out in last Sunday’s outlook, Japan’s stocks has been deeply oversold, and that the Japanese government has urged their public pension fund to support their stock markets. The Japanese government has been targeting assets principally the JGBs and secondarily stocks but hardly the currency, where the latter's actions have been coincidental with such interventions.

In addition, market participants heavily expected today that the BoJ will provide additional measures such as “extending the maximum duration of cheap, fixed-rate funds it offers via market operations to two years from the current one year” (Reuters)

Unfortunately today the BoJ balked. The result? The Nikkei 225 fell by 1.45%.

From the CNBC:

Japan's benchmark Nikkei shed as much as 1.5 percent on Tuesday after the Bank of Japan (BOJ) disappointed investors by failing to address recent market volatility in its monetary policy statement.

The selling pressure extended to the JGBs.

Notes the Reuters:

Japanese government bond prices extended losses on Tuesday after the Bank of Japan left policy unchanged, refraining from announcing a new long-dated funding operation some investors had hoped.

As of this writing JGB 10 year yields appear to be knocking on the .9% door (trading in between .87-.89%) which seemed to have served as the previous threshold indicative for the recent past dives seen in the Nikkei.

And as of this writing too, the Nikkei futures have been drifting vastly lower such that if sustained, this will mean a gap down opening tomorrow. 

Current losses in the Nikkei future points to surrendering most of Monday’s gains.

Of course, current market spasms hasn’t been entirely about JGBs now. US Treasuries pierced their critical boundaries, which adding to Abenomics, has sent many emerging markets such as ASEAN majors to a tailspin. 

Thailand’s SET dived by 4.97%

Indonesia’s JCI slumped by 3.5%

The Philippine Phisix crashed by 4.64% which essentially eviscerated in the entirety yesterday’s 2.59% bounce.

Emerging market bonds such as South Africa, Turkey and Mexico have also been razed

Two of what I see as the three of the world's most critical bond markets have already convulsed. 

Should the French 10 year bond yield surpass the critical levels (2.3%) interest rate, this will make a trifecta that would usher in the perfect storm.

One domestic analyst quoted by mainstream media said yesterday’s rally signified as “bargain hunting” amidst receding foreign selling.

“Bargain” means cheap, hence bargain hunting is a loaded word underpinning a bullish bias. Unfortunately, “bargain hunting” even became more of a bargain today. And if the current selloffs intensifies, bargain hunting will transpose into catching of falling knives.

As I pointed out last Sunday, foreign money represents the 800 lb gorilla: 

If foreign money turns sour on emerging markets including the Philippines, it seems wishful thinking to be bullish on the Phisix in the knowledge of the disproportionate or lopsided balance in favor of foreign investors (15-16%) vis-à-vis local participants (about 1%).

The erstwhile “value” investor Warren Buffett once said, never ask a barber if you need haircut. Such lesson should apply to so-called clueless mainstream experts who provides the confirmation bias to gullible participants, and where the latter end up losing money and blaming the industry.