Japan's 13 Sigma Bond Swan

For 6 months the Japanese jawboning has witnessed traders entrance-operating the BoJ, promoting JPY and purchasing what ever risk-asset is the most correlated that day - regardless of whether it is the Nikkei 225 or the here S&P five hundred. However, now that phrases have been replaced by steps, it appears that somebody (cough Japanese institutions cough) has made a decision the 13.four-sigma swing in JGBs final evening is just also a lot and have rotated to US Treasuries. The promoting of JPY and buying of EUR (to fund peripheral bond purchasing) and USD (to fund Treasury buying) is very obvious. That signifies, implicitly, that every single ramp greater in JPY (weaker JPY) is merely much more bond-acquiring - which leaves the algos directionless.

 

If you ended up a threat-supervisor, what would you do? And as much as all those VaR risk types - oops!!

 

It looks the 'sellers' of people JGBs have found a new place to place that capital to function (and in a non-devaluing currency)...

 

Charts: Bloomberg

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