davidstockmanscontracorner.com / By Kevin Buckland and Shigeki Nozawa, Bloomberg Business •
In Japan, the yield hunters have become the hunted.
Investors who refused to swallow negative yields to hold Japan’s shorter-dated bonds are suffering, as an index of sovereign debt maturing in 20 years or more has lost 9 percent this quarter. The yield on 2036 bonds climbed to the highest since March 16 as BOJ Governor Haruhiko Kuroda noted last week that low long-term yields hurt returns on pension and insurance investments, even as he signaled there would be no reduction in easing with a policy review due Sept. 21. A 20-year debt sale Tuesday drew the lowest demand in six months.
“JGBs are responding unreservedly to the BOJ’s message that it’s not desirable for superlong yields to be too low,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. “The problem is we don’t know what the BOJ’s desired level is, and that’s created an atmosphere of paranoia in the market.”
The intensity of Japan’s bond selloff has sparked concern the market will become the epicenter for a global rout, just as it led a record rally in the first half of 2016. Federal Reserve officials are cautioning against waiting too long to tighten policy, while the European Central Bank is playing down the prospect of further stimulus. DoubleLine Capital Chief Investment Officer Jeffrey Gundlach is among those recommending investors prepare for bonds to fall.