With the Bank of Japan again, the world's most famous "widow transaction" makes a comeback

time:2023-01-30 05:51:32source:chakarski.com author:Technology stocks
With the Bank of Japan again, the world's most famous "widow transaction" makes a comeback

JGBs are also under pressure amid a fresh sell-off in global bond markets, making the massive shorting of Japanese government bonds that was once prevalent in June appears to be returning. But some expect the situation will not be as hot this time around as it was in June.

Successful success in June

The shorting of Japanese government bonds (especially the 10-year government bond) is known as the "widow maker". Over the past 20 years, from London to New York, such deals have done little to benefit young, confident investors other than hurting them. The funds that invested in the "widow transaction" in June were ultimately unsuccessful after a "peak showdown" with the Bank of Japan. At that time, traders were betting that a surge in interest rate hikes caused by soaring global inflation would send the yen further down, forcing the Bank of Japan to abandon its easing policy to keep the exchange rate stable, and yields on Japanese government bonds would soar uncontrollably. However, the Bank of Japan is still stubbornly sticking to the yield curve control policy, and after a series of unprecedented asset purchases, coupled with rising global recession fears, Japan's 10-year bond yields have been gradually pushed down after peaking on June 22. .

The new attack has begun again

In June of this year, the short-selling situation was extremely severe. As the world's second largest sovereign bond market, the Japanese government bond market still withstood the pressure and repelled the speculative attack. Today, when a new attack emerges, domestic investors in Japan are less aggressive this time, thinking: You can try to beat the BOJ, but the deal is called a "widow deal" because no one has yet Successful, they probably won't be successful now. However, this did not stop the Global Fund from trying to "break the barrier" again. Japan's 10-year bond yield is sprinting toward the 0.25% ceiling this week and is likely to climb further as yields elsewhere in the world rise. Meanwhile, the 10-year yen swap rate, popular with international funds, climbed again. On Thursday, the rate was nearly 15 basis points above the Bank of Japan's benchmark of 0.25%, although not as close to 0.6% as earlier this summer, a sign that at least some traders are betting The Bank of Japan will be forced to capitulate. The Japanese yen is falling to new lows as bets on the Federal Reserve to raise interest rates mount, and the Bank of Japan is under pressure to wrestle with the bond “vigilantes” again. Since Thursday, the yen has hit a new 24-year low against the dollar, breaking the closely watched 140 yen mark against the dollar, reviving discussions that the Bank of Japan may intervene in the currency market to support the yen. AllianceBernstein Holding LP and GAMA Asset Management joined the ranks of hedge fund giants shorting or reducing their holdings of Japanese government bonds, betting that the Bank of Japan will have to loosen its tight control of the yield curve. Brad Gibson, co-head of Asia-Pacific fixed income at AllianceBernstein, said: “Japanese-foreign bond spreads, imported inflation pressures that could start to rise as the yen weakens significantly, and these factors will ultimately force the BOJ to act. In our view Come on, this may happen sooner or later.” Rajeev de Mello, GAMA’s global macro portfolio manager, who has been shorting JGBs since May, said: “It is possible that the BOJ will adjust its control of the yield curve at some stage. Short Japan The risk-reward ratio of government bonds is not bad.”

Japan’s domestic investors have succumbed to the power of the central bank

At the recent Jackson Hole global central bank meeting, Bank of Japan Governor Haruhiko Kuroda once again stated that he “don’t "There is no choice" but to continue to ease monetary policy, as inflation in Japan will fall this year or next. With Kuroda sticking to his dovish stance, Shinji Kunibe, head of global fixed income at Sumitomo Mitsui DS Asset Management, believes any new attempt to short the BOJ is unlikely to succeed. He said: “In June, even in Japan, there were some people who had doubts about the Bank of Japan’s stance, but it is now very clear that this time, the impact of foreigners’ shorting of JGBs will not be as strong as last time, because Domestic buyers will not join their sell-off." Kunibe added that volatility in the Japanese bond market may not intensify until near the end of Kuroda's term. One factor that could work in the BOJ's favor is that an overly aggressive Fed rate hike could lead to a recession and a pullback in yields. The options market is still pricing in more than 25 basis points of interest rate cuts from the Fed next year. U.S. inflation should also peak this year or early 2023, which could lead to a rate cut by the Federal Reserve and ease pressure on bond markets, said Hachidai Ueda, senior fixed-income investment specialist at investment firm abrdn. As upward pressure on Japanese interest rates and downward pressure on the yen ease, "this should increase the likelihood that the BOJ will continue to control the yield curve." “I will only gradually buy 10-year JGBs when the yield reaches 0.25%,” said Tadashi Matsukawa, a fund manager at PineBridge Investments Japan Co. at PineBridge Investments. There will be changes, we just trade according to what he says." This article is from Wall Street News, welcome to download the APP to see more
Related content