By Stan Szymanski
The Japanese benchmark 10 year JGB has traded for the first time in 5 trading sessions. A new shocking fact has presented that the JGB 2 year is NOT trading:
…’The two-year JGBs were not traded and the yield JP2YTN=JBTC stayed at -0.060%, while the five-year yield JP5YTN=JBTC rose 0.5 basis point to 0.065%.’…(Nasdaq 10/13/22)
How does a ‘First World’ economy have a benchmark bond (the 10 year) that doesn’t trade for four days? This has never happened since the JGB 10 year became the Japanese benchmark in 1999.
This is a lack of liquidity. Simply put where there is no bid, there is no market. The JGB benchmark 10 did not trade for FOUR FULL TRADING SESSIONS. Now the 2 year trading is absent. This kind of price action (or lack thereof) is typical of ‘pink sheet’ stocks:
…’Pink sheets are listings for stocks that trade over-the-counter (OTC) rather than on a major U.S. stock exchange. Many pink sheet listings are stock shares in companies that cannot meet the requirements for listing on a major U.S. stock exchange like the New York Stock Exchange (NYSE).
Most pink sheet listings are low-priced penny stocks, meaning that they trade for less than $5 per share, and trading in pink sheet securities is often viewed as highly speculative.’…(Investopedia)
There are plenty of Pink Sheet stocks that do not trade every day. There are those that do not trade every week. Many of those are headed toward bankruptcy.
And yet we have a Japanese 10 year that is trading with a yield under 0.25%. The Japanese 2 year is not even trading and the Japan gov’t has the temerity to report that the price of their 2 year note is so high that it sports a negative rate of -.065% while at last look the standard (at least for now) US 10 year is trading at 4.06%.
In my opinion, the Japanese economy is like the CEO of a pink sheet traded stock bragging that they are a top tier concern when in fact they know that, most likely, they have a bankruptcy filing in their future.
The Japanese Yen is now trading at the worst levels against the US Dollar since the 1998 lows.
There is no way this lack of equilibrium can be maintained. Either the Japanese will change rate policy themselves or the markets will do it for them-likely in a brutal manner of repricing to the downside.
The Japanese own almost 50% of their own bonds. It certainly looks as if the other 50% of investors in that market are stepping away from the bid side of JGBs. We have now seen multiple cases just in the last few days of ‘no bid’ for these securities. Where there is no bid, there is no market. Just like the pink sheet stock, it is technically alive and listed, but no one is buying.
When it comes to the story the Japanese government is telling the market with its yields and prices in the Japanese bond market, how can they continue to be listed as top tier securities (or even solvent) when no one is actually buying them? How many worldwide asset managers and mutual funds are exposed to these ‘pink sheet bonds’? You had better ask your broker or your 401(k) ‘once a year meeting at work’ financial representative before you find out the hard way.
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Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice.
