Link: The Easy Button. (Any views expressed in the below are… | by Arthur Hayes | May, 2024

I want to quickly explain why the BOJ would meltdown faster than Sam Bankman-Fried on a witness stand if they were to raise rates. The BOJ owns over 50% of all outstanding JGBs. They essentially price-fix all bonds with a maturity of 10 years or less. They really care about the 10-year JGB rate, as that is a reference rate for many fixed-income products (corporate loans, mortgages, etc.). Let’s assume their entire portfolio consists of 10-year JGBs. Currently, the on-the-run 10-year JGB #374 is worth 98.682 with a yield of 0.954%. Assume the BOJ raises its policy rate to such a degree that the yield matches the current UST 10-year yield of 4.48%. The JGB is now worth 70.951 or a decline of 28% (I’m using Bloomberg’sbond pricing function). That is a mark-to-market loss of $1.05 trillion, assuming the BOJ owns 585.2 trillion yen worth of bonds and the USDJPY rate is 156. Losing that amount of money is game over for the con job the BOJ runs on yen holders. The BOJ holds only $32.25 billion worth of equity capital. #

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Yoooo, this is a quick note on a link that made me go, WTF? Find all past links here.