 |
An influential Japanese “megabank” just flashed a major warning sign for the global economy…
Nikkei Asian Review reports Bank of Tokyo-Mitsubishi UFJ (BTMU) is resigning as a “primary dealer” of Japanese government bonds (JGBs).
Here’s how Treasury bond dealing works: Primary dealer banks buy government debt (bills, notes, and bonds) direct from the Treasury. The dealer banks then earn steady fees and commissions reselling this debt to the public.
It’s “easy money”… and a lot of it. For example, in 2015 alone, the U.S. issued over $2.1 trillion in new debt. Even a 1% commission would mean $21 billion in “free money” to Wall Street’s primary dealer banks.
As part of the deal, the banks agree to buy certain minimum amounts at every Treasury auction. Governments mandate this to try to maintain robust and liquid Treasury bond markets.
The problem is Japan’s central bank has embarked on an unprecedented monetary experiment…
Its monumental asset-buying program has driven interest rates negative on all Japanese government debt up to 10 years in duration. That means a bondholder must pay to lend to the government… including dealer banks like BTMU.
Up to now, the dealer banks have continued buying negative-rate Japanese government bonds… hoping “bigger fools” come along for them to sell it to. But BTMU has decided that’s just too risky. It’s backing out… before it gets stuck holding billions in negative-yielding debt if interest rates should start to rise.
BTMU is like the first person who smells smoke in a crowded theater. He might not see the actual fire yet… but he knows enough to get out before a panicked crowd clogs the exits and gets trapped inside.
The loss of a major primary dealer makes the Japanese government bond market less liquid… and more dangerous.
That’s bad news for the largest Treasury market on Earth. A Japanese bond market “episode” has the power to send the entire global financial system into chaos.
Bottom line: BTMU’s move is a major warning sign for serious trouble ahead. That’s why Tom’s advice to rig your portfolio for “maximum defense” is so important. Follow PBRG’s risk-management protocol to the letter.
|
Recommended Links ALERT: A Massive Run On Gold Could Start As Soon As “This Week”
Take out a calendar and circle the NEXT 7 days… That’s because there’s new evidence that indicates a massive run on gold could take place as soon as this week. And by the time this bombshell hits, it may be too late for you. That’s why gold expert, and author of The New Case for Gold, Jim Rickards dropped everything to issue an urgent warning. Click here for the urgent facts on this fast-moving gold story.
The $1 Million Stock-Picking Strategy
This stock-picking strategy cost over $1 million to create… and over 10,000 man-hours to perfect… but anybody who used it could have turned $100,000 into $480,000 in a decade and beat the market 3-to-1. No wonder Bill Bonner is putting $5 million of his family trust in the new recommendations. Get the details here. |
