Trade of the Day: JGBL

Takeaway: Keith shorted Japanese government bonds today via JGBL, an investment vehicle that tracks JGB futures.

Keith shorted JGBL at 11:42am at $20.68. Keith writes, “I've never shorted Japanese Government Bonds before. Pray for us as we enter the mother of all widow maker positions.”

 

Here’s an excerpt from Keith’s Early Look note that he published on Tuesday at 7:41am where he writes about his take on JGBs.

 

“…Something just jumped off my page as new – JGB Yields.

 

JGB, yeah you know me – as in the most asymmetrically depressed live market quote in all of Global Macro – as in Japanese Government Bond Yields:


1.       10yr JGB Yields +10bps day-over-day to 0.84%

2.       10yr JGB Yields are now +23bps month-over-month

3.       10yr JGB Yields just jumped above my long-term TAIL risk line of 0.82%

 

Oh yes, darkness my old friend, I have been waiting for you. But for how long will you stay? I have never shorted you before. Are you toying with my emotions this morning, or are you for real? If you are for real, what will central planners in Japan do to tone you down?

 

Consensus has spent most of the last 6 months looking for a crisis that never happened. If and when this one happens, it will matter. And the if part isn’t the question in my mind. It’s the when that really matters – when will Japanese and US Government Bond Yields stop baking in that they’ll never go up?

 

Now that the Greenspan/Bernanke Top 3 (major bubbles) have popped (Tech, Housing, and Commodities), this is really the last of the mega bubbles left – the Bubble in Super Sovereign Debt.

 

I don’t like shorting a bubble until that bubble starts:

 

1.       Making lower all-time highs

2.       Confirming those lower-highs at what I define as my bifurcation point (my TREND line)

 

In terms of signaling Sovereign Yield Risk, measuring and monitoring the bubble happens upside down. Which is kind of cool; especially versus the alternative (i.e. being levered long US and Japanese Sovereign Debt for May 2013 to date).

 

In terms of big bang risk, the 2 most important live quotes on my risk management screens next to the US Dollar Index are:

 

1.       US Treasury 10yr Yield of 1.82%

2.       Japanese 10yr Government Bond Yield of 0.82%

 

These are what I call my long-term TAIL risk lines. And they matter – big time; especially when A) they continue to confirm (becoming less random) and B) have causal research (deterministic) factors explaining their confirmations.

 

What’s causal in driving our call for a continued #StrongDollar and higher-lows in UST bond yields? That’s easy – employment, housing, and consumption #GrowthAcellerating as the Fed is forced to tone down bond purchases.

 

What’s causal in driving higher JGB Yields? That’s less easy – credit risk is as likely as a growth scare. Since one or the other can really get bond yields to move, which one will it be? The only thing we know is that there has never been a country with its debt and deficit positions (as a % of GDP) that has burned its currency and not ended up in crisis.

 

So we’ll see. These Japanese risks can happen fast, or slow. They may not happen at all. But, on my risk signaling scorecard, the improbable risk of rising Yield Risk in both US and Japanese Sovereign Debt just went up in the last 2 weeks, not down.

 

Trade of the Day: JGBL - JGBL


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