Why did Japan bond yield spike up when Japan's monetary easing was announced?

[Newmoney24]

The announcement was about a week ago, where Kurado stated the 2% inflation goal and that they would pump $1.4T over the next 2 years

what I don't get is- shouldn't bonds be happy? (they'll be getting purchased), so why did their yields spike up? (and consequently their prices come down?)

 

[silk]

When your currency is falling 2% a week, the bigger question is why don't bond rates rise to say 5-10%. The yen just went from 80 to 100. a 25% loss. but yet people want to still buy japanese bonds at under 1%. I would want 10% to own one of those.

We are in a huge soverign credit bubble. I fear when it bursts it will make 2008 look like a walk in the park.

 

[nazzdack]

Quote from Newmoney24:
----about a week ago, where Kurado stated the 2% inflation goal and that they would pump $1.4T over the next 2 years
----what I don't get is- shouldn't bonds be happy? (they'll be getting purchased)....
----so why did their yields spike up? (and consequently their prices come down?)

1) The "stimulus" was less than expected?
2) Some large holders of JGB's "wanted out".
3) There are longer-term, deflationary, forces/cycles at work that are being completely ignored. :eek:
4) Too much money in circulation ruins the "value" of everything.

 

[chaykapwr]

Quote from Newmoney24:

The announcement was about a week ago, where Kurado stated the 2% inflation goal and that they would pump $1.4T over the next 2 years

what I don't get is- shouldn't bonds be happy? (they'll be getting purchased), so why did their yields spike up? (and consequently their prices come down?)

Everyone who has answered has been wrong but the answer is quite simple. However, the first thing you must know is why the bond yields were so low prior to the announcement. This was all due to the deflationary expectations which brought down the real interest rate. I.e. you don't need a huge return to push you to save if your money is either appreciating or holding its value.

After the suprise announcement which was a bigger qe than most thought people actually started to believe that the BOJ would get the desired 2% inflation. This means yields have to go up to compensate for the loss of purchasing power due to inflation. Its all due to the expectations of inflation

 

[chaykapwr]

Quote from nazzdack:

1) The "stimulus" was less than expected?
2) Some large holders of JGB's "wanted out".
3) There are longer-term, deflationary, forces/cycles at work that are being completely ignored. :eek:
4) Too much money in circulation ruins the "value" of everything.

Awful...just awful...

1. That would be bad for equities which would have started a run to safety pushing yields lower
2. That's a joke right? Do you realize how big the jgb market is? No one party could move it like that except for the BOJ
3. Deflation is good for bonds not bad. ..simple economics
4. It doesn't ruin the value of hard assets or even financial assets....

Please refrain from bullshit next time

 

[ChiBondKing]

Quote from chaykapwr:
After the suprise announcement which was a bigger qe than most thought people actually started to believe that the BOJ would get the desired 2% inflation. This means yields have to go up to compensate for the loss of purchasing power due to inflation. Its all due to the expectations of inflation

Bingo.

The sheer size of their QE program could overshoot the 2% target. It'll be worth watching the results of the 20y and 2y auctions coming at the end of this week. (5/28 & 5/30)

 

[nazzdack]

Quote from chaykapwr:
----Awful....
----1. That would be bad for equities which would have started a run to safety pushing yields lower
----2. That's a joke right? Do you realize how big the jgb market is? No one party could move it like that except for the BOJ
----3. Deflation is good for bonds not bad. ..simple economics
----4. It doesn't ruin the value of hard assets or even financial assets....
----5. Please refrain....

1) I was wearing my "broadcast journalist hat" when I said that. But still, it can be made to "fit the news", after-the-fact. You're knee-jerkingly assuming that a decline in equities will produce a rally in the bond market.
2) You're wrongly assuming it takes "a lot" of money to move the market "a little". Did you graduate from college after the Spring of 2009?
3) You're dangerously assuming credit quality remains the same, an ability to meet the debt service and the immunity of central banks & government to market forces.
4) You're badly assuming that all "market bubbles" deflate at the same time. Hard assets have gone "soft" recently. Wait a minute, let me guess......you're long gold from $1600/ounce AND silver from $30/ounce?
5) If you drink more water, eat a little bit more fiber and get an additional hour of sleep each day, your outlook will mellow.

 

[chaykapwr]

Quote from nazzdack:

1) I was wearing my "broadcast journalist hat" when I said that. But still, it can be made to "fit the news", after-the-fact. You're knee-jerkingly assuming that a decline in equities will produce a rally in the bond market.
2) You're wrongly assuming it takes "a lot" of money to move the market "a little". Did you graduate from college after the Spring of 2009?
3) You're dangerously assuming credit quality remains the same, an ability to meet the debt service and the immunity of central banks & government to market forces.
4) You're badly assuming that all "market bubbles" deflate at the same time. Hard assets have gone "soft" recently. Wait a minute, let me guess......you're long gold from $1600/ounce AND silver from $30/ounce?
5) If you drink more water, eat a little bit more fiber and get an additional hour of sleep each day, your outlook will mellow.

1. Show me one economist or analyst who was expecting more qe than what boj produced. Even GS was in awe.
2. No I'm not assuming anything but when you're talking about a multi quadrillion yen market. ..then yes I am saying it will take a lot to move the market
3. You're going to the extreme of the spectrum because that's the only argument you can
make against the fact that deflation is most of the time good for bonds.
4.again you've gone WAY off course because you are assuming that all bubbles are creatded out of too much currency in the system. Bubbles can be caused by a multiple of things. Now to prove my point...how much gas could an ounce of silver buy 50 Years ago? How much can it buy now? Answer the same question but instead of silver use a one dollar bill. Now tell me does everything lose its value when there is too much money in the system ?

 

[Newmoney24]

Quote from chaykapwr:

Everyone who has answered has been wrong but the answer is quite simple. However, the first thing you must know is why the bond yields were so low prior to the announcement. This was all due to the deflationary expectations which brought down the real interest rate. I.e. you don't need a huge return to push you to save if your money is either appreciating or holding its value.

After the suprise announcement which was a bigger qe than most thought people actually started to believe that the BOJ would get the desired 2% inflation. This means yields have to go up to compensate for the loss of purchasing power due to inflation. Its all due to the expectations of inflation

One more question-- how come USD/JPY has been falling in the past few weeks?
If there is to be more QE, and if it was a surprise, wouldn't that cause the value of the yen to decrease? Rather, the Yen has been rapidly regaining value, why is this?