Remember that once-in-a-lifetime, "don't worry there's plenty of liquidity" flash-crash in japanese Government Bond futures on Tuesday night (Wednesday morning Japan time)… well it happened again…
JGB Futures to be halted any minute…
And so the market chaos even among the "safest" of securities, the result of central bank intervention, continues. Bloomberg's Richard Breslow summarized it best:
Even with QEs creating what look an awful lot like bubbles, it’s been fair to say, those distortions reflected the reaction function of how central bankers interpreted the state of play. Yield levels, let alone negative rates, and volatility are making these guideposts increasingly questionable.
If you look at the yield curves of much of the world, you’d be hard pressed not to conclude we are very much still experiencing a severe global recession. Central bankers may strongly disagree, yet Japanese 10-year JGBs haven’t seen 2% this century. German bunds have backed up to 21bps. Both are likely to increase QE. The U.S. is tightening (?) and 10- year yields are still down 42bps on the year
The Fed wants to raise rates but insists on re-investing the take on its massive portfolio. They act like fund managers protecting their AUM.
The Osaka Stock Exchange had to invoke circuit breakers today on the March JGB future for excessive volatility. Buying panic yesterday to front-run today’s QE buying led to panic selling today into BOJ bids 22 bps through Monday’s close. Oh, and did I mention, ahead of an auction tomorrow. The take-away is mayhem, not analysis.
And now we look forward to an even greater surge in volatility first ahead of the Fed and BOJ next week, who – just like everyone else – have no idea what is going on any more.
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