Posts Tagged bonds

Japan’s Finance Minister Noda to be new PM – Yahoo! News

So this was a vote against Ozawa and his preferred candidate.  Great.

Instead of a deep debate over how to jolt Japan out of decades of stagnation, the party vote had turned into a battle between allies and critics of Ichiro Ozawa, a 69-year-old political mastermind who heads the party’s biggest group even as he faces trial on charges of misreporting political donations.

via Japan’s Finance Minister Noda to be new PM – Yahoo! News.

Read the article to find out more about Noda’s views. The only thing I found interesting in it was this: “Bond markets welcomed the choice of Noda, who among the candidates was the only one consistently calling for Japan to face painful reforms to curb its massive debt”

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2011/08/23 17:32 – ‘Bond Vigilantes’ Sizing Up Prime Minister Hopefuls

Update: My emphasis below. What is propping up Japanese government debt is “domestic banks’ insatiable appetite for bonds”. However, this appetite is limited by how much banks have in their accounts. Therefore, elementary my dear Watson, drawing down one’s bank account will hasten the day when domestic banks find government bonds less tasty.

An Aug. 2 report by Goldman Sachs Japan chief economist Naohiko Baba recently caught the attention of bond investors. It focused on how long domestic banks can keep adding to their holdings of JGBs. Baba predicts that as Japan ages people will begin drawing down their bank accounts to cover living expenses. That will sap banks’ investment funds, he writes, which will make it difficult for them to increase their JGB holdings sometime between fiscal 2016 and 2019.

Domestic banks’ insatiable appetite for bonds is one of the main reasons Japan has been able to support a public debt worth 200% of its gross domestic product. The bond vigilantes are trying to determine how long Japanese banks can keep up their purchases.

According to French economist and writer Jacques Attali, the sustainability of a country’s sovereign debt is as much a political as an economic phenomenon. The markets’ main concern is how serious heavily indebted governments are in tightening budgets and sparking economic growth. If that commitment looks doubtful, investors can rush for the exits.

via 2011/08/23 17:32 – ‘Bond Vigilantes’ Sizing Up Prime Minister Hopefuls.

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Mish’s Global Economic Trend Analysis: Worst Demand on Record for Japanese 40-Year Bonds; Can Japan Service its Debt? How?

Mish quotes Bloomberg (the link is broken)

The 400 billion yen $5.2 billion sale drew bids valued at 2.03 times the amount on offer, the weakest since the Ministry of Finance began selling the securities in 2007.

The yield on the 2.2 percent bond maturing in March 2051 jumped 15 basis points to 2.335 percent as of 5:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Japan’s Ministry of Finance said that every 1 percentage- point increase in 10-year yields above 2 percent would add 1 trillion yen in debt-servicing costs to a projection of 22.9 trillion yen for the fiscal year starting April 2012. The nation’s total debt may reach 219 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

via Mish’s Global Economic Trend Analysis: Worst Demand on Record for Japanese 40-Year Bonds; Can Japan Service its Debt? How?.

Mish comments:

nearly all of that demand is internal.

Internal demand is a double-edged sword. Right now it is still sufficient. However, when (not if), Japan ever needs foreign buyers for its bond market, rates will not be 2.3% on 40-year bonds.

Here is the key: If Japan does not maintain a trade surplus covering both interest on its national debt and bond redemptions, all hell will break loose. This gives rise to the question as to how long Japan’s vaunted export machine can remain intact. I do not have the answer to that question, but China and the rest of Asia are nibbling away bits and pieces now. The tsunami sure did not help.

It is mathematically impossible for every country to maintain a trade surplus, yet every country wants to do just that.

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