OH SH'T Japan is Dumping U.S. Treasuries

Japan is dumping treasuries at the fastest pace in 4 years and here's why this matters to you. Because if you're long the US equity market like I am, the biggest risk right now is rising interest rates because as I showed you in yesterday's show, the risk is that rising rates threaten to turn this rally into a massive correction. And the problem with Japan is they're the world's largest foreign holder of US treasuries, so if they start to sell, watch out, means rates are likely to scream higher. And on top of that, Morgan Stanley just issued a massive warning about the US stock market and it had absolutely nothing to do with the treasury market. And wait till you see what they're saying, but let's dive into what's going on in Japan because the real story in Japan is something that the markets can't see. The problem is, based on the data we got from the US today, will suggest that yields could potentially skyrocket, but I've got one chart that may say, once again, everybody's wrong about the bond market. Net sales of debt issued by the US government agencies and local authorities totaled $29.6 billion in US dollar terms and 3 months ending March 31st. That's the highest since the second quarter of 2022. So what we're facing here is a mass exit of US treasuries to the point where we're seeing the most sold in the last 4 years. And this is shocking because Japan has been a monster buyer of US treasuries and it had everything to do with the fact that rates there were near zero. And that is changing. But again, the assumption that most people have is completely wrong. Because markets have been operating on the assumption that rate cuts would have materialized at some point, which supported buying. But that's not it at all because right now the assumptions were that we're going to see one rate cut this year and that was about it. And that's not really enough to spur massive amounts of buying. But what's really going on here, the real issue here, is everything to do with the JGB market. Let's take a look because Japan's tenure yields continue breaking out to the upside. And you can see its track is 21 day moving average shown there in red and is barely pulled back indicating that rates in Japan on the tenure are about to skyrocket and continue to do so. And not to be left out, the 30-year yields are validating because they're at extremely elevated levels. In fact, the chart looks like the long bond here. You see 30-year yields in the US are facing the same situation. And a slightly higher close risk triggering a breakout from a massive triangle formation. And what we're seeing here is complex positioning and psychology have developed inside this range over time, meaning any breakout could quickly turn into an aggressive squeeze where people are dumping and shorting JGBs. Of course, the risk is we see then the same move starting to spill over into the US. But the real reason, the real risk here is something that the market can't see. But let's take a look at just how big the exposure is because Japan, again, the largest holder of US Treasury securities, around 1.2 trillion. That means they've got a whole lot they could sell. So the question should be is why has Japan been buying all these treasuries? Well, remember back when the rates were near zero, what the issue was is there was no yield. So it was a very simple case where you go out and you borrow against your JGBs and then you buy higher yielding US assets you could afford to pay the dollar hedging costs and you come out ahead. But now the real issue is JGB yields are going up and it makes absolutely no sense to buy treasuries. In fact, arguably, it makes more sense to dump them. And that's the big risk for the equity markets right now. So again, if you're long the market like me and you're concerned that perhaps this thing could reverse, you've got to be following what's going on in treasuries. And then when you tack on top of what was just released in the US.