“Ordinarily in the first post we would recap any of the key overnight events, but in this case there was just one event of note ahead of today’s non-farm payroll seasonally adjusted “noise”: the halting of the Japanese Government Bond complex due to excessive volatility. Now, this is not some zero-liquidity penny stock or an algo fat binary finger: at last check there is one quadrillion yen in Japanese debt, which makes it the second biggest sovereign bond market in the world. Yet one glimpse at what transpired in overnight trading and one can see just why the Japanese regulators decided it is time to close all bond trading. The reason: the JGB’s insane decision to literally reflate or bust, and with it the total loss of all signalling to various asset classes, because while the country is targeting 2% inflation, its bond curve is indicating the most epic deflation in history. The good news: the bond market reopened… eventually; the bad news: who knows if it will, the next time there is a 100% swing from low to high in the 10Y JGB bond yield in the span of hours. Which brings us to the point of this post, summarized best by Deutsche Bank’s Jim Reid who overnight said it best: “we are now flying blind“… The central banks are now flying a plane that has lost all hydraulics and their only option is to add ever more power to the engines to pretend they are still in control.
From DB’s Jim Reid…”
If you enjoy the content at iBankCoin, please follow us on Twitter
