Interesting twist of events.
The chairman of the advisory group to Japan’s Government Pension Investment Fund (GPIF), the world largest retirement pool of retirement savings, advocates that the pension fund substantially reduce their holdings of Japanese Government Bonds (JGB) holdings by selling now.
From the Bloomberg (bold mine)
The world’s biggest retirement fund needs to cut local debt holdings now because Japan’s government will follow an advisory panel’s recommendation that the wealth manager seek higher returns, the panel’s head said. Bonds fell.The 124 trillion yen ($1.22 trillion) Government Pension Investment Fund should pare domestic debt immediately to 52 percent of assets, its lower limit, in part by selling to the Bank of Japan, said Takatoshi Ito, chairman of the advisory group. The investments comprised 58 percent of the fund’s holdings as of Sept. 30.“GPIF needs to start reducing bonds as soon as possible,” Ito said in an interview in Tokyo today. “Now is the right time to sell, while the BOJ is buying.”The comments show a rift between Ito, an academic handpicked by Prime Minister Shinzo Abe to help overhaul Japan’s state-backed pension plans, and Takahiro Mitani, president of GPIF since 2010. The central bank, which is buying more than 7 trillion yen of bonds a month, will fail in its goal of spurring 2 percent inflation and the risk of owning so much domestic debt was overstated by Ito’s panel, Mitani said this week.
And here is the kicker: (bold mine)
Mitani said in a Dec. 4 interview with Bloomberg News that inflation is less of a risk to GPIF than many people, including Ito, assume, because the fund is a long-term investor and can hold bonds until redemption. Consumer-price increases will probably stay between 0.1 percent and 1 percent, missing the BOJ’s 2 percent target, he said.Mitani “doesn’t seem to understand that it’s about mark-to-market valuation,” Ito said today.If GPIF doesn’t start reducing its holdings before inflation takes root in Japan, the fund will exacerbate a slump in bond prices by needing to sell as demand from other investors wanes, Ito said.“If inflation reaches 2 percent, and yields rise to 3 percent, and then they start trying to sell domestic bonds, we’ll see disaster in the markets,” he said.
10 year JGBs appear to have reacted dramatically to the above comments with a sharp spike in yields.
Meanwhile the yen fell hard (above is the USD-Yen)…
…as Japan’s equity benchmark the Nikkei 225 “celebrated” the yen’s fall ending the session higher by .81%
Even people close to Japan's powers-that-be acknowledge that JGBs signify a ticking time bomb.This also reveals how vulnerable the global financial system is.
1 comment:
You write JGBs signify a ticking time bomb.
Yes, how true,
On December 6, 2013, The Euro Yen Currency Carry Trade, EUR/JPY, rose strongly to close at 140.99, taking Chinese Financials, CHIX, and Chinese Industrials, CHII, to lead the stock market higher on the day on a strong jobs report.
Of note, the inverse of Japanese Ten Year Government Bonds, JGBS, popped higher, on the strong sell of the Japanese Yen, FXY.
With the rise in stocks, the Inverse Of The Market ETFs, STPP, HDGE, XVZ, GLD, JGBS, EUO, HYHG, SAGG, hich one might used for margin collateral in a short selling account, for the most part traded lower on the day.
Investing.com reports that The Yield on the 10 year JGBs jumped higher from 0.630% to 0.678% on the 1.1% trade lower in the Yen, FXY, to 94.99; and that the Nikkei, NKY, traded 2.0% higher.
And you write, This also reveals how vulnerable the global financial system is.
It's gone beyond vulnerable.
Please consider that the “age of deflation” has commenced: “fiat wealth deflation” has commenced as deflationism is underway, The European Financials, EUFN, and the European Stocks, EZU, and Italy, EWI, and Spain, EWP, are leading the global stock market lower. Reuters reports falling aggregate demand, Unilever streamlines products, cuts [2,000] jobs to confront world slowdown
The bull market that began in June 2013, turned to a bear market on December 6, 2013, as the bond vigilantes called the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.88%. Tyler Durden in article Stocks Tank presents Bloomberg chart showing that both stocks and credit have now failed, as bond vigilantes have called the Interest Rate on the US Ten Year Note, ^TNX, higher to 2.88%.
World Financials, IXG, closed 1.2% higher, on the day, 1.5%, lower on the week.
World Stocks, VT, closed 1.2% higher, on the day, 0.8%, lower on the week.
Nation Investment, EFA, close 1.2% higher, on the day, 1.3%, lower on the week.
Loss leaders for the week were the European Financials, EUFN, the Brazil Financials, BRAF, and Retail, XRT, with Apparel Retailers were down strongly this week.
European Financial, EUFN, closed 1.8% higher, on the day, 2.4%; lower on the week.
Eurozone Stocks, EZU, closed 1.4% higher, on the day; 2.1% lower on the week.
Italy, EWI, closed 1.5% higher, on the day; 3.5% lower on the week.
Spain, EWP, closed 0.8% higher, on the day; 3.2% lower on the week.
The failure of investment seigniorage in the European Financials, EUFN, is most striking given the rallying EUR/JPY, which is seen in the chart of the spread between ULE and YCL.
Brazil Financials, BRAF, closed unchanged on the day; 5.9% lower on the week.
Brazil, EWZ, closed 1.3% higher on the day; and 3.7% lower on the week.
Retail, XRT, closed 0.6% lower, on the day; 2.5%, lower on the week.
In Europe, a genuine disinflationary and deflationary cycle is at work: disinflation (falling prices) and deflation (falling aggregate demand) are both occurring.
And now with the trade lower in fiat wealth, that is World Stocks, VT, on the week ending December 6, 2013, coming on the rise of the Benchmark Interest Rate, ^TNX, to 2.88%, a marked epic change has occurred, that being the destruction of both fiat money defined as Aggregate Credit, AGG, and Major World Currencies, DBV, and Emerging Market Currencies, CEW, as well as fiat wealth, defined as Eurozone Stock, EZU, are trading lower. The result is the world has pivoted out of the age and paradigm of liberalism .... and into the age and paradigm of authoritarianism.
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