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Bond Market Paralysis: What Happens When Central Banks Own the Market? Mish’s Sure-Fire Proposal

Courtesy of Mish.

Here’s the question of the day: What happens when central banks own the market?

The answer comes from Asia where Japan’s Government Bond Market Grinds to a Halt and the yield on 10-year Japanese bonds did not move for seven days.

Yields on newly issued 10-year Japanese government bonds remained flat for seven straight sessions through Friday as the Bank of Japan continued its efforts to keep long-term interest rates around zero.

The 10-year JGB yield again closed at 0.055%, where it has been stuck since June 15. This marks the longest period of stagnation since 1994, according to data from Nikkei affiliate QUICK.

The implied volatility of Japanese government bonds reached its lowest point since January 2008. Trading in newly issued 10-year debt has become so infrequent that broker Japan Bond Trading has seen days when no bonds trade hands.

During its policy meeting that wrapped up last Friday, the BOJ reaffirmed its commitment to continuing monetary easing until Japan reaches its 2% inflation target. That goal remains far off, with inflation stuck near zero.

Quiet Descends

Trading in short-term interest rate futures has also thinned. Tuesday saw no transactions in three-month Tibor futures — the first time that has happened since such trading began in 1989.

The three-month Tibor, or Tokyo interbank offered rate, has not moved in the nine months since the end of September 2016. There were just a few trades last Friday, and it was only a matter of time until the number hit zero.

This is all so stupid. It is easy to produce inflation if you want it. I have written about this several times already.

Please consider Mish’s Sure Fire Proposal to End Japanese Deflation: Negative Sales Taxes, 1% Monthly Tax on Gov’t Bonds.

Rather than indent with blockquotes, what follows is my proposal as presented twice already.

Mish’s Sure-Fire Proposal

It’s rather amusing that Japan cannot destroy its currency even though it has tried, and tried and tried.

Abenomics has been a huge failure. Keynesian “solutions” of all sorts have failed to rid Japan of the alleged scourge of deflation.


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