Chart Credit: Trading Economics
By Stan Szymanski
As I write, this morning the Japanese Government (JGB) 40 Year bond is trading at record high yield, currently 3.44%%.
There are only two times in history that the JGB 40 year has traded as high as 3%. That happened in January 2011 and again in January 2024.
As one can see in the chart above, rates on the JGB 40 year have spiked from just 2.60% a month ago to 3.44% today.
Approximately two and one half years ago I wrote a piece entitled ‘Japanese 10 Year Bonds Trade First Time in 5 Days-JGB 2 Year NOT Trading-Where There is No Bid There is No Market’. I mentioned in this writing that the Japanese owned almost 50% of their own bonds. Today the number is almost 70%(!).
When the Japanese government owns 70% of JGBs and yields are going higher it can mean a number of things. The Japanese government is losing control of the price of long JGB as you basically have more sellers than buyers and buyers could just be stepping away from the bid as they did with the JGB 10 yr and the JGB 2y in 2022.
__________________________
Please refer to our proviso at the end of the article regarding any reproduction of this writing (This means those who modify my writing for their benefit and own financial gain and even plagaristically put their name on my work) and consider a donation to Encouraging Angels today. We need your support
—————————————-
It also means that inflation is now stubborn and rates cannot be stuffed back down into the narrow range that benefitted Japan for decades. The ‘carry trade’ has evaporated.
In addition, higher rates on the long end of the yield curve are an indication of an increase in risk regarding the creditworthiness of Japan. In order for investors to consider buying bonds that now hold a higher credit risk they must be compensated with higher rates. With the government holding 70% of outstanding JGBs that would pretty much mean that the remaining 30% of the market is moving the market-increasing the risk premium on JGBs as reflected in their recently rising yields (and subsequent drop in price) and signaling that the solvency of Japan is starting to be called into question. By owning 70% of the bonds that it issues itself-Is Japan starting to look like a snake eating its own tail?
All fiat currencies, whether Dollar, Yuan or Yen, are losing the war against GOLD. This A.M. the US 30 Treasury is down and the yield is up to 4.88%, closing in on the psychologically important (in a negative way) 5% level. Countries are dumping the Dollar and implementing new trade corridors to circumvent the use of the dollar. And of course the rising price of gold is evidence of its desirability on the parts of central banks, countries and large (whale) investors to hold -real- assets and to comply with Basel III.
Gold is no one else’s liability. Gold cannot bankrupt. Any transactions settled in gold never have to rely on the ability of a counterparty to be able to settle its side of a trade.
Will we once again reach a point where JGBs don’t trade and actually go ‘no bid’ as they did in 2022? Only time will tell. But if we we do see it we just may see the kick off of a crisis that expresses itself in the illiquidity of derivatives trades that cannot perform that could put the global financial system at risk.
And for all you reading this what does this mean for you? IMHO, if it were me-I would consider holding part of my assets in financial assets that cannot bankrupt and do not depend of the ability of a government to pay you back the money they owe you (the payment of principal and interest of a bond when due). Those assets to consider are PHYSICAL Gold and PHYSICAL Silver (not paper contracts like ETF’s). This is not financial advice. Please consult a financial professional; for informational purposes only.
When a snake begins eating its own tail, the beginning of the end is at hand (or would that be mouth?). In Japan’s case, as yields rise (and the purchase of the bonds they also issue), the deeper the tail descends down the throat of the serpent…
———-
If you appreciate this article can you consider a gift to Encouraging Angels for the intelligence we provided today? Click this link to give. We need the support. Links to this article are encouraged. Reproductions of this writing are only allowed by written permission of the author and those reproductions must include this proviso of request for support, how this writing may be reproduced and following disclaimers.
All opinions are that of the authors and not necessarily that of Encouraging Angels.
All rights reserved.
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. For informational purposes only.
