Posted on 02/02/2016 11:55:43 AM PST by Former Proud Canadian
Dear Bank of Japan, how do you spell unintended consequences:
•PLANNED MARCH SALE OF 10-YEAR JAPANESE GOVERNMENT BONDS THROUGH BANKS TO BE CANCELED AMID EXPECTED BELOW-ZERO YIELDS - NIKKEI
•JAPAN'S MINISTRY OF FINANCE IS EXPECTED TO ANNOUNCE WEDNESDAY THE FIRST-EVER DECISION TO CALL OFF SALES OF 10-YEAR JGBS- NIKKEI
Here is the full Nikkei report on this absolute stunner of a development:
The planned March sale of 10-year Japanese government bonds through banks to retail investors, municipalities and others will be canceled amid expected below-zero yields following the Bank of Japan's recent move to adopt negative interest rates.
The Ministry of Finance is expected to announce Wednesday the first-ever decision to call off sales of 10-year JGBs.
The JGBs in question are sold through Japan Post Bank and regional banks in 50,000 yen ($415) units. The holder can cash out this new type of bond ahead of maturity. With the ministry already having suspended sales of two- and five-year instruments, all sales will end. But variable-rate 10-year JGBs for retail investors will still be offered.
(Excerpt) Read more at zerohedge.com ...
Japan is in dire, dire, straits.
The usual reason you can’t sell bonds is that your credit is bad. Therefore, the price is too low, and the interest rate is too high.
This is the reverse. If the interest rates are negative, the buyers would be paying the government to hold their money, in this case for 10 years. Did the auction fail because there were no buyers? Or was the BOJ too embarrassed?
Gosh, who could have seen that coming?
You can buy bonds and get a negative yield or just hold on to your cash and get zero yield. Not a hellofalot of incentive to buy bonds.
A lot of people believe that low interest rates cause deflation, not inflation. And, there seems to be both evidence and theory behind this. In which case, the attempts to defeat deflation actually worsen it.
I’m guessing the the BOJ would love to sell as many bonds at these prices as they can. They pulled the sale because of a lack of interest in the low rates.
I think this is very very big. They, like a lot of countries, pay off old debt by selling new debt. If they can’t sell new bonds, they need to pay off old debt from revenue. Which means big immediate spending cuts/tax increases. Or, they can offer a higher interest rate to be able to sell bonds. Or they can default.
Scratching my head...did you inadvertently reverse "high" and "low"?
this story is hard to believe.
...............
if the BoJ wants to sell bonds,
offer positive 1% instead of negative 1%.
what am I missing here????
Re post 26. Exactly.
They have tried to stimulate the economy by lowering rates and increasing the money supply. They have reached the point where nobody wants their bonds because there is no or negative return, NIRP.
They don't want to raise interest rates for two reasons. First they think the economy will collapse if they raise rates, certainly the stock market will react unfavorably. Second, and probably more importantly, if Japan gets to the point where they have to pay 2% on their bonds the entire revenue of the government will go to interest on the bonds. No money for anything else.
So, the BOJ and the government is between a rock and a hard place. The few ways out include: default, confiscation of bank accounts, currency controls, a huge tax increase, (hyper)inflation, or a huge devaluation of the yen. Perhaps a combination of the above.
They are in big trouble, but don't worry, we will all be in the same boat in a few years. Buy physical gold and silver. Hold it close to you.
Did I reverse “high” and “low?”
It depends on your point of view. If you’re the government, what people are willing to pay is too low, and they’re demanding too much interest. If you’re the bond buyer—the market if you will— the government wants too much for its bonds and is not willing to pay enough interest. So it’s reversed if you look at it from that point of view. No matter.
The idea is clear enough: bond price and interest rate move in opposite directions.
What’s weird here is that interest rates are negative.
I assume the above principle (not principal here) is the same. The BOJ could always sell the bonds by offering to pay a little bit of positive interest over ten years, but it seems as if it is refusing.
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