There has been a lot of excitement overnight and online with FinTwit and the financial media about the sudden move in the Japanese bond yields, especially the 30 year which had a big time move today of over 10 pips at one point. The charts being displayed are usually of a one to two and a half year time span which illustrates the dramatic rise.
Is this really that severe? Let’s drag the chart out over a longer time period and see just what it says about what is happening overseas. Here’s a 25 year chart to illustrate how impressive this move in yields appears to be:
But is the 30 year that important to Japan’s government? The increased issuance of super long bonds was supposed to help with their financing issues to offset the deflationary funk they have been in. However, the primary maturities are and will continue to range from the 1 year to the 10 year range.
So let’s look at the other long term and more popular issues on a long term historical basis to see if this is just click bait or a serious issue for the Japanese government.
The 40 year JGB looks almost identical to the 30 year albeit with a shorter history and a verification that indeed, no one wants to be long dated Japanese debt:
The 20 year JGB also reflects this although it is a more popular investment for institutions in Japan and overseas. However, it still has a long way to move in yields to reflect a reason to get excited as prior longer duration high yields demonstrate:
The more popular 10 year JGB is in a similar circumstance over the long term:
That’s a long road to follow to get above 2.5% but it is still early in the ball game, especially if the Bank of Japan tries to promote higher inflation to stimulate growth.
The 2 year JGB is also stuck as BoJ policy has caused some selling but nothing of consequence; yet.
1% seems to be a realistic higher end target which would create a major stir in global sovereign debt markets.
So is this a chart crime by the media to stir up everyone or is it a legitimate cause for concern? Based on the almost nightly liquidation of US Treasury Bills by Japanese banks and insurers, I shall go with the latter. It would appear that ‘money goes home’ (a nod to Samantha LaDuc) is already occurring and that could well be the model for what will happen in the US in the near future.
There is no long term confidence in the Japanese government’s ability to stimulate growth but in the short term, Japan might become one of the havens for short term shelter from the upcoming economic storm on the horizon being created by the US trade war on the world.
