Japan bonds - flashing red

Investment Analysis Clubs Macro Economic Trends and Risks
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Back on the cliff edge (again)

Price action is becoming parabolic, as bond investors require more and more premium to hold long-duration Japanese bonds.

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I am not seeing a cause for alarm.

Yields are 3.5% - lower than US yields.

The quoted stimulus is 3% of their GDP. Their total govt spending as a percentage of GDP is about 21%.

The US govt spending as a percentage of GDP is about 23%.

UK govt spending as a percentage of GDP is about 44%.

So, why is this “flashing red?” Yellow perhaps but this seems to be a reversion to the mean than anything catastrophic.

Let us know when they start to approach Greek debt yields, circa 2014.

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Japan’s debt is about 230% GDP. The bank of Japan holds about half of this debt. Wherever you look the yield on that debt is rising fast indicating a rising cost of rolling that debt over.

Not a good look IMHO. However, the FT tells us that there is a strong demand now that yields have risen:

Foreign investors are piling into long-dated Japanese government bonds at the fastest pace in more than two decades this year, attracted by a sharp rise in yields in a market that has for years offered few profits for traders.

https://archive.is/NILIc#selection-1947.0-1947.227

I won’t be buying any!

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This is an important point. Though the ratios of budget, GDP and other characterstics are in nominal ranges, debt service is not linearly included.

We know that as yields rise for new issuances the mean interest rate rises as well. This crushes the value for all long duration bonds (and destroys value for sellers who do not hold to maturity - I’m looking at you bond funds!)

This has the effect of poisoning the balance sheet through debt servicing.

blah blah blah.

At what point does Japan national debt (safe haven alternate for other reserve currencies) become untenable? 4%? 6% 9%?

Will we see these rates? Or, will Japan grow their way out of this through stronger economic production, swelling the coffers through economic revenues?

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Disagree it is a cockroach of contagion proportions.

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