For effectively 5 years Japans 10year benchmark has traded below the 200dma taking with it yields around the world. Japanese institutional investors are one of the biggest groups of investors who influence the flow of large insurance, pension, endowment and municipal allocations.
JGB yields with exception of four small periods during this 5 year run where they challenged a break higher have been a function of seemingly endless attempts by the BOJ to avert deflation. Today we are at another test of the 200dma and with that also a potential break above negative yields. With all the cross currents of asset classes at work here, we would argue the stage is set for a potential turning point on JGBs which will drive ALL markets globally.
We can wax on about correlations of asset classes but bottom line is that bonds have been pushing everything else around, including currencies, equities and commodities. Deflationary forces and attempts to fix them have forced Fed, BOJ, and the ECB into excessive action. The Fed arguably has altered policy by not exiting “EMERGENCY” status because of Japan (EWJ, quote). Arguably Deflationary forces and the actions of CBs put pressure downward on oil (USO, quote) that wasn’t just excess supply. The ECB exacerbated this move in January 2015 with their deepest plunge into quantitative easing which forced the USD (UUP, quote) higher and this is what really killed oil, but again I digress.
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