Midweek Macro Note: "Returning to Normal" in Tokyo Terms, Vision Note, Mr. Bond Market Reminders...

In this Midweek Macro Note - the team dissects bond market issues, downgrades, Japanese issues, technicals, macro trading - and more. #MacroEdge

"Returning to Normal" in Tokyo Terms (@DonMiami3, MacroEdge Chief Economist)

Good Wednesday evening MacroEdge readers & community, 

This evening we’ll be discussing the latest movements in markets - from equities to crypto to the bond markets as things to continue to evolve. Today we saw our first negative market reaction to the spike in yields - which was a result of the D- bond auction - highlighting less demand for our debt (anyone surprised?)... The bond market is reacting to a combination of the downgrade, the absolutely unhinged omnibus ‘tax cut’ package that Congress is working on, and markets are shifting under our feet again… though the next few moves will take some time to play out to wrap up May, and into June + July. Though the bounce supported by the fiscal put and global central bank intervention in April ended up being more aggressive then we had originally forecast - it’s not outside of the realm of possibilities for our broader market forecast for the remainder of the year. Recall from our early March forecast ‘Mapping Uncertainity’: 

I continue to expect that there will be a price to pay for fiscal and monetary idiocy - though it’s going to take time to play out. Retail going all-in over the last two weeks has accelerated confidence in that this move likely begins to abate here – given what would be required to see further upside in a 1998 magnitude (though don’t rule out a total fiscal put for everything nominal asset prices). On Friday evening – we’ll discuss more of the macro data from the week - including other headlines like the Wolfspeed bankruptcy announcement - and continue to utilize our hyper-agile framework for forecasting the next market moves before they arrive. 

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“Returning to Normal”... in Tokyo Terms 

Yields in Japan have returned to ‘blowing out’ this week… literally… with the 10Y recovering its March highs, and the 30Y at 2-decade highs while the 40Y has hit all-time highs. The BoJ has abruptly shifted to a more hawkish tone - talking about having a small window for another rate hike - and this comes on the back of the BoJ saves in early April that are now all but an afterthought. The Japanese Minister of Rice resigned yesterday due to the rice crisis (in costs) and other problems continue to mount for the heavily indebted, elderly nation, reliant on various forms of financial Frankenstein that I expect us to adopt in the not-so-distant future.