Hi Ron,
it's been a very pronounced rise all along the US yield curve. It has proven to be the most resilent move up in rates down in price in several years....... It's feeling as if we have actually turned the supertanker of the secular downtrend in interest rates around; and from a number of indicators it appears as if a long term bear market in bonds, with a higher yield curve across the board is unfolding.
We made a Low in yield on the 10 year note in 1946 shortly after the end of WWII and then embarked on a 35 + year long term trend to higher rates that peaked out the week of Oct 19th 1981. I believe that we have now experienced a balancing of time and price where we have gone through the same roughly 36 year cycle of lower and lower rates ended as the Japanese changed their central bank monetary policy on JGB in early July of this year.
I noted this nascent sea change in the direction of Japanese long rates in a post back on 8/8/16
Message 30694261
The Japanese helped to lead the way to Global QE and Central Bank asset expansion and their government has also been instrumental in this shift away from that paradigm.
| To: John P who wrote (18355) | 8/8/2016 3:00:39 AM | | From: John P | Read Replies (1) of 18481 | | | Japanese Bond Selloff Pushes Yields Near Positive
Investors have been shedding Japanese government bonds since Friday’s central-bank disappointment
By RACHEL ROSENTHAL and HIROYUKI KACHI
Updated Aug. 2, 2016 10:02 a.m. ET
A selloff in Japan’s 10-year government bonds sent these negative-yielding assets within a hair of positive territory.
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Yields on the benchmark 10-year Japanese government bond rose Tuesday as high as minus-0.025%—the highest level since March 16—compared with minus-0.145% Monday. They were around minus-0.06% late afternoon in Asia. Yields rise when bond prices fall.
The 0.2-percentage-point climb in yields over three sessions is the biggest move since May 2013, a month after Bank of Japan Gov. Haruhiko Kuroda introduced his first “bazooka” of monetary easing.
Japanese government-bond prices have been falling since Friday, when the central bank announced what amounted to modest policy tweaks—dashing expectations of an interest-rate cut further into negative territory and an expansion of asset purchases. The central bank’s easing program has fueled the fantastic run in bond prices since it started three years ago, so any hints the BOJ might be losing its punch has spooked bond investors.
Selling accelerated on Tuesday in the run-up to a government auction of 10-year bonds, and continued when results showed that demand remains weak.
Beyond the pervasive sense that the Bank of Japan’s monetary policy has reached its limit, the market was rattled by the central bank’s saying it plans a “comprehensive assessment” of policy in September. The rare bit of guidance has stirred questions among investors and analysts about what the BOJ—with a rich history of surprising markets—could be up to.
“What caught the market off-guard and was shocking for us was not that [the BOJ] would postpone additional easing, but rather that they are reviewing the structure of the current market,” says Tadashi Matsukawa, head of Japan fixed income at PineBridge Investments in Tokyo, who manages ¥80 billion ($782 million) in assets. “That means that potentially [the BOJ] might tighten rather than ease, and that’s a source of confusion.”
What shape any tightening could take is anyone’s guess. One option, for example, would be adjusting its ¥80 trillion annual asset-purchase target to a range, and reducing its lower boundary to ¥60 trillion but raising its upper boundary to ¥100 trillion, says Shuichi Ohsaki, a rates strategist at Bank of America Merrill Lynch in Japan.
Limiting asset purchases would damp the appetites of investors who have been buying shorter-dated Japanese government bonds, despite their negative yields, with the expectation of selling them later to the BOJ at even higher prices.
The Bank of Japan’s Haruhiko Kuroda announced modest changes Friday. PHOTO:KAZUHIRO NOGI/AGENCE FRANCE-PRESSE/GETTY IMAGES
BOJ Gov. Haruhiko Kuroda suggested that market players are mistaken if they expect the comprehensive assessment to lead to tightening. “I don’t think it will produce such results,” he told reporters following a meeting with Finance Minister Taro Aso. “There is no change in our policy stance to push down the entire yield curve” to stimulate growth and generate 2% inflation.
On Tuesday, the market was particularly tense ahead of a Ministry of Finance auction of more than ¥2 trillion in 10-year bonds. Demand was weaker than usual, but some market participants were reassured when it emerged that big Japanese banks bought up large chunks of the issuance, a sign of confidence that prices would arrest their downward spiral.
Mitsubishi UFJ Morgan Stanley Securities was the biggest buyer, snatching up ¥585 billion—27% of the total issuance—according to Quick.
PineBridge’s Mr. Matsukawa said the rise in 10-year yields was an “opportunity to buy,” though he would be stepping in “cautiously.”
Despite the cloudy outlook, analysts say they are skeptical that selling will continue, given the BOJ’s commitment to easing.
“The negative-rates policy is under way,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management, adding that the 10-year yield should eventually go back to the minus-0.1% interest rate the BOJ introduced earlier this year.
Earlier Tuesday, Japanese Prime Minister Shinzo Abe ’s cabinet also approved a ¥28 trillion ($274 billion) stimulus package, a widely telegraphed action that analysts said had already been priced in by markets.
—Kosaku Narioka contributed to this article.
http://www.wsj.com/articles/japanese-bond-selloff-pushes-yields-near-positive-1470137561
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my observation on the 36 year equilibrium point in the US Debt market made on 7/12/16
http://www.siliconinvestor.com/readmsg.aspx?msgid=30656854
Carter Braxton Worth with a really excellent synopsis that equities have been outperforming US Fixed income market....... the expert asking Carter a question and stating that we have been in a 5 decade rally in bond prices..... does not even know his markets well enough to understand that we are coming up to the 36 year equilibrium point which encompasses the 36 year period from 1946 until oct 19th 1981 when bond prices fell and interest rate rose and then the more recent season (cycle) where bond prices have had a bigger bull market than equities and interest rates have fallen.
an observation on the endgame for the EUR
With the Endgame of he EUR almost certainly going to break up over time as the solve northern countries exit, coupled with the Trillions of dollars of Negative yield sovereign debt going to for the major global governments, Sovereign wealth funds, Global Insurance and Re Insurance companies and Governmental and corporate pension funds .... this market set up will ultimately unleash vast changed in the way that a number of the Global asset markets are valued and create significant opportunities as well as risks for individual investors, Global Macro Asset managers and indeed society as a whole.
This is nothing new... The changes in wealth that took place in the 1930's and then the WWII years was at least as momentous as what we are looking at.
Thw unintended consequences of Central Bankers gone mad
http://www.siliconinvestor.com/readmsg.aspx?msgid=30658432
http://www.siliconinvestor.com/readmsg.aspx?msgid=30751163
JP
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| To: The Ox who wrote (18323) | 7/11/2016 6:18:39 PM | | From: John P | 7 Recommendations of 18481 | | |
Hi Ox, my view of the future is a bit more nuanced than you may be perceiving it. In a future environment where interest rates rise substantially..... as they did in the 1970's bond prices will decline in price and the price multiple on equity and indeed all investment will contract.
The hurdle rate at which a new plant or business is viable goes higher. However, with bond prices falling, there are vast opportunity to make money shorting bonds, bond products, interest rate derivatives including the multitude of ETF's that now exist.
Merril Lynch and several other major firms have calculated that 60 % of the SPX gains since 1980 were due to Price earning multiple expansion due competing rates of return on fixed income declined in a massive fashion.
20% was organic growth of the businesses and 20% came from buy backs, a move away from traditional GAAP accounting and other aspects of financial engineering.
Institutional Investors in Japan this year have seen there 30 year JGBbonds appreciate 40 to 50% in 5 months as prices have zoomed higher even as rates are negative. That and the vast appreciation of the currency has made institutional investors fantastic returns this year, in an environment in which many wall street FA's think that everything has been horrible in Japan.
The money that has been made in fixed income with the continuous long term capital appreciation along with interest payments earned has not been widely enough appreciated by most of the financial media.
The abiliy to make money in bonds and the array of fixed income products by selling them short when rates ultimately reverse will provide vast returns for the minority of smart money of the mind set and able to position themselves for such an environment.
In the 1970's investors in inflation recipient asset classes produced tremendous returns.......One of the most interesting things that we learn from the market Wizards Interviews in Jack Schwager's books is that 1981 was a year in which the many of the smartest Hedge fund and Global Macro managers lost big money was due to them not picking up on the sea change from rising interest rates to falling interest rates, After Paul Volcker stopped the runaway inflation mindset by putting the Fed Funds rate up to 19% at he start of 1979....... dropping FF rates all the way down to 9% in the June- July time frame of the year... and then moving Fed Fund rate dramatically higher back to 19.25% by the end of the same calendar year.
over the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219%
I had more written on this but lost it in a made up load.... hope to have more on my thoughts soon.
JP
btw..... totally agree with your statement below.
With today's rates so very low, a 200% to 400% move higher in long bond yields over the next decade should not be underestimated, IMO.
over the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219%
I had more written on this but lost it in a made up load.... hope to have more on my thoughts soon.
JP
btw..... totally agree with your statement below.
With today's rates so very low, a 200% to 400% move higher in long bond yields over the next decade should not be underestimated, IMO.
over the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219%
I had more written on this but lost it in a made up load.... hope to have more on my thoughts soon.
JP
btw..... totally agree with your statement below.
With today's rates so very low, a 200% to 400% move higher in long bond yields over the next decade should not be underestimated, IMO.over the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219%
I had more written on this but lost it in a made up load.... hope to have more on my thoughts soon.
JP
btw..... totally agree with your statement below.
With today's rates so very low, a 200% to 400% move higher in long bond yields over the next decade should not be underestimated, IMO.over the past 20 years the S&P 30 year bond return has been 319% and it has outperformed the SPX total return of S&P 500 index by 85%...... the total return has been 219%
I had more written on this but lost it in a made up load.... hope to have more on my thoughts soon.
JP
btw..... totally agree with your statement below.
With today's rates so very low, a 200% to 400% move higher in long bond yields over the next decade should not be underestimated, IMO.
Message 30658578 |
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