JGBs – How They Responded to Japan’s Eco Nuke

April 22, 2013 2:31 pm

Japan’s yield curve has flattened since the central bank’s new governor, Haruhiko Kuroda, announced plans for unprecedented quantitative easing. Bloomberg’s Graph Curve Surface function shows the market’s response
to Kuroda’s plan and therefore the potential impact of similar programs in other countries.

There has been a good amount of talk related to the potential for Japan’s buying spree to backfire, even as they are committed to buying loads and loads of their own bonds.

(Look at JGBD and JGBS as potential positions to take advantage of a rising yield/lower JGB price)

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From Bloomberg:

April 22 (Bloomberg) — The Bank of Japan’s Haruhiko Kuroda caused the worst sovereign debt performance on record in his first month as unprecedented yield swings unsettled investors.

Bank of Japan Governor Haruhiko Kuroda’s April 4 decision to double monthly debt buying caused the benchmark rate to fall to an all-time low then surge twofold the next day, boosting 10-day yield volatility to a record last week. Photographer: Andrew Harrer/Bloomberg

Japanese government bonds maturing in more than a year have gained 0.45 percent on an annualized basis since Kuroda became BOJ governor on March 20, the lowest return since at least 1994, according to data compiled by Bloomberg and the European Federation of Financial Analysts Societies. That compared with a gain of 16 percent for Treasuries. Japan’s notes returned 2.3 percent while his predecessor Masaaki Shirakawa was in office.

Kuroda’s April 4 decision to double monthly debt buying caused the benchmark rate to fall to an all-time low then surge twofold the next day, boosting 10-day yield volatility to a record last week. While the swings will probably recede, bonds may be hurt in the long term as his policies spur concern that the central bank is financing government deficits, according to JPMorgan Asset Management Japan Ltd.

“The tremendous easing by Kuroda surprised markets and volatility shot up,” said Genji Tsukatani, who helps manage $1.5 trillion of assets at JPMorgan Asset Management in Tokyo. “While yields are likely to stabilize at low levels in the coming year, the longer term implications for the market are not so positive as risks of monetization start to emerge.”

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