Latest news with #bondmarket
Reuters
6 hours ago
- Business
- Reuters
BOJ long-term government bond holdings fall for first time since 2008
TOKYO, May 28 (Reuters) - The Bank of Japan's long-term government bond holdings fell for the first time in 16 years as of end-March as it tapered bond purchases, its earnings showed on Wednesday, in another sign of its steady retreat from a massive decade-long stimulus policy. As a result of its interest rate hikes, the central bank paid 1.25 trillion yen ($8.3 billion) in interest on excess reserves parked at the BOJ in the fiscal year that ended in March - a move aimed at mopping up liquidity from the market to nudge short-term borrowing costs around its 0.5% policy rate. As its monetary tightening drove down bond prices, the BOJ's government bond holdings incurred valuation losses of 28.6 trillion yen, the largest since the BOJ began using current accounting methods in 2004, its 2024 fiscal year earnings showed. The earnings data highlight the cost the BOJ is paying to normalise monetary policy and whittle down a balance sheet that has ballooned from years of heavy bond buying. The BOJ exited a massive stimulus programme in March last year and pushed up short-term interest rates to 0.25% in July and 0.5% in January. It also began slowing its huge bond purchases under a taper programme laid out in July. The central bank's holdings of long-term Japanese government bonds (JGB) stood at 574.2 trillion yen as of the March end of fiscal 2024, down 11.4 trillion yen from a year earlier, marking the first decrease since 2008, its earnings showed. Its total government bond holdings, including short-term debt, fell 13.7 trillion yen to 575.9 trillion yen, the earnings showed, declining for the first time in three years. The BOJ has signaled its readiness to keep tapering its bond buying. At its policy meeting next month, it will conduct an interim review of its bond tapering plan running through March and come up with a programme for April 2026 onward. Many market players expect the BOJ to make no big changes to its existing taper plan and believe it will likely maintain or slightly slow the pace of tapering from April 2026 and beyond. While describing the BOJ's balance sheet as too big, Governor Kazuo Ueda said in March it was hard to predict how much it ought to reduce its size which, at around 745 trillion yen, exceeds the size of Japan's gross domestic product. ($1 = 144.1100 yen)
Forbes
12 hours ago
- Business
- Forbes
Is A Bond Crisis Imminent?
Jaime Dimon, JPMorgan Chase CEO, warned of a coming crisis in the bond market due to the growing US ... More national debt when he spoke at the Reagan National Economic Forum last week. (Photo by) You are going to see a crack in the bond market. – Jaime Dimon When Jaime Dimon, JPMorgan Chase CEO, spoke at the Reagan National Economic Forum last week, he warned of a coming crisis in the bond market due to the growing US national debt. He said, 'I don't know if it's going to be a crisis in six months or six years, and I'm hoping that we change both the trajectory of the debt and the ability of market makers to make markets.' This analysis aims to look at how close the bond market might be to his predicted crisis. Notably, 10-year US Treasury yields reached their nadir when the betting odds of a recession were at their highest. As one should expect, yields have risen as the odds of a recession have declined. Directionally, the move in yields makes complete sense, though one can argue that yields have increased more than is warranted. It seems clear that at least the 10-year US Treasury yield isn't acting in an extreme fashion. Yields & Recession Odds Without exception, the fiscal position of large countries, including the United States, as measured by government debt relative to GDP, deteriorated due to the impact of spending during the pandemic. Most countries had already been increasing their debt relative to economic activity, but the pandemic accelerated this trend. US General Government Debt-To-GDP According to Strategas, once US debt servicing costs, as a percentage of tax revenues, rise above 14%, there tends to be some fiscal strain and fiscal austerity results. The US passed that interest cost level in July 2023 and is now at around 18%. The debate about the US tax bill in the Senate will be interesting to watch as it might reflect some of these concerns. US Government Debt There is no magic level of debt-to-GDP that signals disaster since countries with a more resilient economy can service more debt. Generally, the deterioration in government fiscal health is a global issue. In addition, with yields rising following the pandemic, other countries also face the higher interest costs previously discussed for the US. Government Debt-To-GDP Are global yields reflecting growing concerns about government fiscal health? Despite the talk about rising bond yields in the US, the 2- and 10-year Treasury yields have declined year-to-date. One area where a consistent theme of higher interest rates is evident is in the long-term maturities. Japan is particularly notable given the combination of a massive debt load and a 30-year bond yield that has risen the most year-to-date. Government Bonds: Year-To-Date Yield Change The term premium refers to the additional yield demanded by investors for holding longer-term bonds. This premium can include compensation for interest rate risk, inflation uncertainty, credit risk, and other factors. However, at times, the 30-year Treasury yield has been below the 2-year yield. Generally, when this happens, investors seek interest rate risk because they expect short-term interest rates to decline. U.S. Treasury Yields The simplest definition of the term premium is to subtract the yield on the shorter-term bond from the yield on the longer-maturity bond. In this case, the 30-year US Treasury minus the 2-year. Notably, the term premium tends to be at its lowest or even negative before an economic recession. There are more complex versions of the term premium that seek to identify the components driving changes in the term premium. Still, they are highly susceptible to assumptions and provide different answers, so their reliability is suspect. US Term Premium: 30-Year Minus 2-Year Yield One measure of long-term expected inflation is the 5-year breakeven inflation rate five years in the future. The calculation isn't essential, but it is used to measure long-term inflation expectations by removing short-term inflation trends. Investors in long-term bonds should be concerned about long-term inflation rather than short-term inflation. While the US term premium has risen since mid-2023, these long-term inflation expectations haven't risen appreciably. US Expected Inflation Returning to a global focus, the term premium between 30-year and 2-year bonds has risen across all the large developed countries analyzed. The rise in the US term premium year-to-date does not stand out from the others. Historically, the median US term premium since 1999 has been 78 basis points (0.78%) compared to the current 103 basis points. The term premium has been as high as 399 basis points. Japan is notable, with a current term premium of 223 basis points and a historical median of 163 basis points. Furthermore, the reading was 269 basis points, so the most current reading is closest to the maximum of any countries considered here. Japan is experiencing a surge in inflation, with consumer prices rising at a 3.6% year-over-year rate after being zero or negative for much of the period since 1999. Since many factors impact term premiums, it is impossible to know exactly how much concern about fiscal health is being priced into the increase. Circumstantial evidence suggests that bond investors may be growing weary of funding the growing pile of debt without additional compensation. Global Term Premium Year-To-Date Change Although Mr. Dimon primarily spoke about US debt levels and a potential bond crisis here, the decline in the government's fiscal health is a global issue. In a perverse sense, the US likely benefits from the situation, as it has the extraordinary privilege of a high per capita GDP, control of the global reserve currency, and the ability to issue debt only in US currency. Since the US can handle significantly more debt levels than most other countries, our bond market should be relatively more insulated from crisis. Like any privilege, it can be misused to the point of being revoked, so one must not be blind to the US debt pile. The current fiscal trajectory in the US is unsustainable, and the debt service burden has grown large enough to squeeze out other spending. The most pleasant way to address the problem is to expand the economy and thereby increase the tax base while maintaining spending at a lower rate; however, it is unclear whether policymakers will choose this path. Though likely apocryphal, optimists will point to Winston Churchill purportedly saying, 'Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.' History is littered with countries choosing to devalue their currency through inflation to repay debts with a cheaper currency, so it is little wonder that term premiums have risen globally. Government bond investors are demanding higher yields on long-term bonds from most countries, which may lead to a shift in the willingness of markets to fund large deficits.
Yahoo
a day ago
- Business
- Yahoo
‘It Is Going to Happen': JPMorgan CEO Jamie Dimon Warns of Crack in the Bond Market
JPMorgan Chase CEO Jamie Dimon warned of a crack in the bond market and said the U.S. should be stockpiling military equipment instead of Bitcoin at an economic forum on Friday. Dimon, who was interviewed on stage at the Reagan National Economic Forum in Simi Valley, Calif., prompted some market jitters during Friday's sideways trading session. Asked if he thought so-called 'bond vigilantes' that sell U.S. Treasuries due to worries about growing deficits have returned, Dimon replied 'Yeah.'
Forbes
2 days ago
- Business
- Forbes
Lawrence Lepard Predicts 'The Big Print'
Although the Federal Reserve and other major central banks, even the Bank of Japan, are not today buying bonds or increasing the base money supply significantly, many people suspect that more overt financing of governments via the money-creation process may lie not too far ahead – what, in the past, often took the form of literally printing paper banknotes; although today, the process is likely to be more digital in character. One such person is Lawrence Lepard, author of The Big Print (2025). Lawrence Lepard's new book The Big Print Lawrence Lepard Just in recent weeks, Japan's government bond market has had a price breakdown of the sort not seen since, perhaps, the late 1970s. People have been predicting disaster there literally for decades; but perhaps now the time is upon us. Even the US Treasury market, although one of the better credits in the developed world, has had a notable trend toward weakness. Bond buyers can see that today's historically huge deficits – the Congressional Budget Office predicts 6%+ of GDP deficits basically forever – do not seem to have any upcoming resolution. Despite the heroic recent efforts of the Department of Government Efficiency, Congress has not yet found the will to cut its spending in any meaningful way, preferring instead minor tweaks. But, decades of minor tweaking, in lieu of significant reforms, are what brought us to this point in the first place. Lawrence Lepard is well qualified as a guide to this era. His history, first in the Venture Capital world in the 1980s, and later as a fund manager, has given him a front-row seat to the whole historical process. Most people don't have the time to follow these things very closely, or the expertise to judge them. About the best they can do is read certain business journalists. Fund managers have both the time (it's part of their job) and also the expertise, enough expertise to point out where the journalists are wrong, missing the main points, or, often, biased by certain interests. My favorite account of the crisis of 1907 was that of Jesse Livermore, one of the largest speculators of the time. Unfortunately for the rest of us, fund managers are often very busy, far too busy to write books. Ray Dalio, after his retirement from daily management of a large hedge fund, has benefited us with several insightful books. (His latest book, How Countries Go Broke, is due June 3.) I hope other fund managers also feel inspired. Lepard begins his story around the introduction of the Federal Reserve in 1913, which followed the introduction of similar monopoly central banks around the world in the late 19th century. Immediately afterward, with the outbreak of World War I, these central banks were pressed to help with war financing efforts, with the result that floating fiat currencies erupted across the global landscape. But things really took a turn for the worse in 1971, when a combination of abject incompetence, and also a spreading enthusiasm for using monetary distortion to attempt to manage the macroeconomy (President Nixon wanted to be re-elected in 1972), resulted in the outbreak of floating fiat currencies around the world again, even in the midst of peace, balanced budgets and unprecedented prosperity. There is a lot to tell along the way, taking things up through the Financial Crisis of 2008, and the Covid era of 2020. Lepard's expertise shows through, as his brief descriptions hit on the most important points and correct conclusions. The 2020 period, in which central banks around the world engaged in unprecedented monetary expansion, showed their increasing willingness to essentially 'run the printing presses' whenever things got tough. Unfortunately, along the way, they also showed Congress (and other governments worldwide) that no real discipline is needed, because every problem can ultimately be solved with the central bank printing press. The natural conclusion of such logic is a Big Print somewhere down the line here, and maybe not too far away. The fact of the matter is, debt/GDP ratios have become so high, throughout the developed world, that the 10%+ interest rates of the early 1980s are no longer tolerable. Even at 6%, with a 100% debt/GDP ratio, that implies 6%-of-GDP in debt service costs alone, on top of 'primary deficits' (perhaps 3%-4%) driven by unreformed 'mandatory spending' programs such as Medicare and Social Security. Either a decline in currency value, or 'monetary inflation' as we called it in our recent book Inflation, or even more direct purchases of government bonds by central banks, may become necessary to inflate away the existing debt, and finance continued deficits at tolerable rates. Unfortunately, coming this far, Lepard loses the plot entirely toward the end of the book, championing Bitcoin as some kind of improved 'Sound Money' system. It is not. The idea is that Bitcoin's supply is limited, so that wanton 'increases in the money supply' can't come about. This is true, but the reason why 'Sound Money' has always meant gold in the past, is because gold has been proven, over centuries of human experience, to be reliably stable in value. It's this stability of value that makes gold work so well as a basis for monetary systems. This error, mistaking 'stability of supply' for 'stability of value,' is an old one, going back at least to Milton Friedman's flawed proposals of the 1950s. Or, as I put it here more than a decade ago, 'Bitcoin Proves Milton Friedman's Big Plan Was A Joke.' Basically, Lepard is a bullish Bitcoin speculator. And, perhaps Bitcoin will rise in value, in coming years. It seems to be persistently popular. But it is this tendency to rise in value (or fall in value, dramatically, from time to time) that makes it unusable as a currency; and why it is not, today, used as a currency. If you want to see what a currency looks like, look at the US dollar stablecoin Tether (USDT). Since its value is linked to the dollar, we can be pretty sure that almost nobody is using it as a speculative vehicle. (Forex traders have better platforms, such as FXCM, to do their speculation on.) But, Tether has also had an enormous increase in popularity, with the number of outstanding Tether coins rising from $2 billion in 2019 to $153 billion today. It is popular because it works pretty well, as a kind of monetary alternative. Bitcoin and gold are not really competitors. They are completely different. If gold is a pretty good hammer, to hit the nail of Stable Currency Value, Bitcoin is not a better or worse hammer. It is more like a lemon meringue pie. But, if you are wondering why an experienced hedge fund manager might be bullish on Bitcoin today, Lepard will give you an excellent list of arguments. For now, gold-based stablecoins have not been very popular. They still look like Tether in 2019. Even Tether's own gold alternative, Tether Gold (XAUT), still has a sub-$1 billion market cap. But, since USDT Tether is linked to the US dollar, Tether's value would also fall, in some kind of 'Big Print' situation. Around that time, people might become more serious in their search for monetary alternatives that achieve the ideal of Stable Value. Neither Tether nor Bitcoin would qualify.
Yahoo
2 days ago
- Business
- Yahoo
‘You are going to panic,' Jamie Dimon tells regulators about what will happen when the bond market cracks
Jamie Dimon, JPMorgan Chase & Co.'s longstanding chief executive, fired off a warning about the bond market on Friday, telling regulators they will 'panic' when it happens. 'You are going to see a crack in the bond market — OK,' Dimon said, speaking at an event organized by the Ronald Reagan Presidential Foundation. 'It is going to happen.' 'You never know what might happen': How do I make sure my son-in-law doesn't get his hands on my daughter's inheritance? Five emerging pillars of stock-market support that should keep investors from rushing the exits My ex-wife said she should have been compensated for working part time during our marriage. Do I owe her? My daughter's boyfriend, a guest in my home, offered to powerwash part of my house — then demanded money S&P 500 scores best May since 1990, but stocks end month with fresh tariff worries 'And I tell this to my regulators — some of who are in this room — I'm telling you this is going to happen. And you are going to panic.' Dimon has been a frequent critic of banking regulations, pointing to 'deep flaws' in the rules in the wake of extreme tumult in the bond market in April. He has singled out proposed changes to banks' supplementary leverage ratio as likely to aid the roughly $29 trillion Treasury market. A sharp bond selloff in April has kept investors on edge and rattled White House officials. President Donald Trump, during peak tumult, said that bond investors were getting 'yippy.' Trump then paused some of his most aggressive tariffs, and stocks rallied powerfully in May. Some investors have been buying the dip on the view that Trump would threaten but not apply those higher levies. That has helped the S&P 500 index SPX get back to nearly where it started the year. Treasury prices, however, remain under pressure, which has driven up yields. Longer-duration 10-year BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y yields were at 4.418% and 4.931%, respectively, on Friday, up about 25 basis points in May, their biggest monthly yield jumps this year, according to Dow Jones Market Data. 'I don't hold the same view as Jamie,' said Tom di Galoma, managing director at Mischler Financial Group, when asked about Dimon's bond-market warning. 'I though the bond market was broken back in April,' di Galoma said, adding that successful Treasury auctions over the past week, including a closely watched 7-year auction, helped reinforce calm in the sector. The Federal Reserve and Treasury also have tools to use if needed, he said, to help manage points of friction and stress in the sector. Treasury Secretary Scott Bessent has been vocal about wanting to see lower 10-year Treasury yields, which could help unthaw the housing market and ease credit conditions. To that end, Bessent said work was being done with U.S. banking regulators on potential changes to the supplementary leverage ratio, and he noted that results could come as soon as this summer. Read: Treasury Secretary Bessent has a plan to bring down long-term yields. But will it work? The Fed purchased trillions of dollars in Treasurys during the 2007-08 global financial crisis and again in 2020, at the start of the pandemic, to reopen credit markets and keep them functioning. The Treasury Department lately has also been repurchasing certain Treasurys that trade less frequently to aid market liquidity. However, bond investors remain anxious that the GOP's massive tax and spending bill could add to the U.S. deficit, which could require more Treasury issuance and keep rates elevated. Trump's chaotic approach to tariffs, with U.S. courts now also in the mix, has also raised concerns about foreigners potentially selling — or simply allocating less to — U.S. assets, including the dollar DXY, stocks and Treasurys. Those fears were evident last week after a weak 20-year Treasury auction spooked investors and stocks dropped. 'I'm not going to panic,' Dimon said Friday, as part of his warning of trouble ahead for the bond market. 'We'll be fine.' JPMorgan shares JPM fell 0.1% Friday but were 10.1% higher on the year so far. The S&P 500 finished the session up 0.5% so far in 2025, while the Dow was 0.6% lower and the Nasdaq Composite was off 1%, according to FactSet. It's my dream to travel to Africa. My husband says it's not on his bucket list. Do I pay for him or go alone? This chart shows why investors should be worried about the latest bond-market selloff My friend is getting divorced. Her husband kindly said, 'Take the house.' Is there a catch? 'What we found horrified us': My elderly relative mistook charity envelopes for overdue bills — and gave thousands to other family members Bond 'vigilantes' are sending warnings globally. What does that mean for your portfolio?
