Why Japans Debt Markets Are Frozen 13 JUN 17, 2014 3:30 AM EDT By William Pesek As Japan gets the inflation its been craving all these years, the bond market is doing something very surprising: nothing. Far from panicking over each uptick in the consumer price index, traders are pushing Japanese government bond yields lower. Todays 10-year bond rate is 0.58 percent compared with 0.735 percent at the start of 2014, even though the CPI is rising at a 3.4 percent year-over-year rate. Anyone else confused? This disconnect owes much to Haruhiko Kurodas unprecedented asset-buying spree. By gobbling up an ever-larger number of bonds at auction and in the secondary market, the Bank of Japan governor has essentially paralyzed the market. Whats more, this is becoming a global phenomenon as hedge fund managers from New York to London to Singapore bemoan the death of market volatility. Few scribes have done a better job exploring this marvel of monetary-policy making better than my Bloomberg View colleague Mark Gilbert in London. Hes looked at the feat through the lens of economist Hyman Minsky, who argued that long periods of market stability and harmony can reach tipping points, which then rapidly degenerate into chaos. What worries me is that central banks in Frankfurt, Tokyo and Washington now find themselves on a treadmill from which theres no escape. As it accelerates, their bond-buying efforts will have to keep pace. Over time, theres no doubt that the worlds biggest central banks are headed toward the widespread monetarization of debt -- effectively nationalizing bond markets and raising troubling questions. Not least of them: How exactly does a central bank withdraw from a market it essentially owns? bloombergview/articles/2014-06-17/why-japan-s-debt-markets-are-frozen
Posted on: Wed, 18 Jun 2014 07:43:24 +0000
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