Back to my JGB-Japan debt crisis watch.
JGB’s rallied strongly yesterday. The 10 year bond yield retreated back to .817% or a 3 week low (left window). This came as Japan’s major equity benchmark the Nikkei dived by 3.72% (right window, stockcharts.com)
Yesterday’s rally in JGB’s seems to have foreshadowed today’s 2% rally in the Nikkei.
Nonetheless fresh reports say that weak demand for JGBs once again pushed yields higher today.
From the MSN/Reuters:
Weak results of an auction of 2.4 trillion yen ($24 billion) 10-year bonds on Tuesday and aggressive selling of 30-year bonds ahead of Thursday's auction for that maturity led to a steepening of the yield curve.
Currently the yield curve seems mixed. 10 year yields have been trading higher at the .84-.87 range while 30 year yields have firmed by .7 bps. The shorter end has posted declines.
As of this writing, Nikkei futures seem as slightly up from today.
Whether the Nikkei’s rally today constitutes a dead cat’s bounce or an inflection point ultimately depends on the developments of Japan's bond markets.
Much of the financial volatility seen today, especially pronounced in the Emerging Markets, can be traced to the turbulence in Japan's bond markets.
Media’s cheering on the positive effects of “Abenomics” on Japan’s stock markets will have temporary or short term impact at greater cost overtime.
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