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Something disturbing is happening in the Japanese bond market…
Zero Hedge reports the Japanese 40-year bond hit a record low yield of 0.403%. Here’s the interesting thing: The Japanese 30-year bond yields more—0.437%.
This is what’s known as “inverted yield.” It’s a warning sign markets flash as they hit their breaking point…
Longer dates to maturity should mean higher yield… in a normal interest rate environment.
But the Bank of Japan’s extreme negative interest rate policy has driven bond investors to “hoard” positive yield. Investors see so little opportunity elsewhere that they grab onto the most “stable” asset they can hold—in this case, the 40-year bond.
As Bloomberg reports, this means liquidity in the world’s largest sovereign bond market is running dry. Every bond with a duration of 10 years and under sports negative interest rates.
No one is willing to sell the few remaining maturities with positive yields.
Bottom line: We’re witnessing the end of central bank control over the world’s third-largest economy. When Japan unravels, it will wreak havoc on every other market on Earth. Stay long gold and the U.S. dollar.