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Bond Market Selling Continues On BOJ's Comments

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Kuroda spoke Thursday evening (Friday morning in Japan) about the need for governments to implement structural reforms.

Here is a pertinent quotation: it is “extremely important to raise growth potentials or natural interest rates through simultaneously implementing structural reforms.”

Kuroda is signalling the Abe Administration to help the Bank of Japan beat back deflation. This is a tacit admission on the Governor’s part, that the BOJ has reached the end of its abilities in and of itself.

This is the reason we are seeing selling in the bond markets to the extent we have been recently seeing. Bond traders are reading between the lines of the speeches of these various Central Bankers and coming away with the view that they are calling on their governments to provide stimulative measures.

Regardless, the increase in the supply of bonds is concerning, especially now that it looks like one of the biggest sources of recent demand, namely, Central Bank bond buying programs, is now either going to be reduced or removed altogether.

Thus we are seeing fears of supply outrunning demand. Whenever you have too much of an item for the current level of demand, economics 101 tells us that the price must fall in order to entice buyers to come in and absorb the extra supply. Bonds look to be now searching for a new and lower equilibrium level.

Stay tuned…