The Son of Finance of the Great Age

  Chapter 161 Have nothing to fear

   "This is just a good time for Japan to solve deflation, no wonder they dare to short treasury bond futures like this!" After reading the research report sent from Hong Kong, Zhong Shi couldn't help sighing.

It turns out that since the 1990s, the Japanese stock market has collapsed, but due to the flood of liquidity caused by the low interest rate policy previously maintained to stimulate the economy, to put it bluntly, there is too much money circulating in the market, but due to the sluggish economy, this money has become big. trouble. Therefore, the Bank of Japan began to raise interest rates and withdraw currency from the market, but the strength of it was difficult to grasp, and it became the point of deflation today if one was not careful.

Deflation and inflation are two concepts. In short, there is less money available for circulation in the market. According to the law of economic development, it is better to have a little inflation than try to avoid deflation. Therefore, at this time It is necessary to open the gate to release water and release liquidity.

The Japanese consortium aggressively attacked bonds in the U.S. and even the European market. They must have seen or even received a hint of the Bank of Japan’s interest rate cut. In other words, or reverse operations, such as reverse repurchase in the bond market, can easily dispel the reverse expectations in the market.

   "Sure enough, one link is linked to the other. It conforms to the right time, place and people. It seems that Japan has a master!" Zhong Shi thought about it from the beginning to the end, and sincerely admired it.

What he didn't know was that this was jointly formulated by the economists and strategists of Japanese securities companies. After experiencing two large-scale crashes in the Nikkei Index in 1990, Japan began to pay attention to financial wars and slowed down the war. The angry Japanese brokerages began to recruit talents with great fanfare, and they often exchanged some views on the international market, especially the US market, but they did not know that all of this was for an economic war with the US at some point in the future.

   Now the opportunity fell from the sky, and the Japanese, who had been sharpening their knives for a long time, showed their ultimate move!

Sure enough, in the positions announced after the market closed, the bond index empty orders on the seats of Japan's Nomura Securities, Daiwa Securities, Nikko Securities and other major securities firms have increased significantly, and those securities firms with Japanese consortium holdings also have varying degrees of openness. Empty orders increased. At the same time, there was also a huge increase in long positions on the seats of domestic investment banks and brokers in the United States.

   Another battlefield, namely the bond market, also experienced price fluctuations to varying degrees during the session, and the trading volume hit a new high in the past month. Analysts’ explanation for this phenomenon is that the market’s current expectations for inflation have reached an unprecedented level, and some financial institutions have difficulty maintaining their positions due to the loss of investment in the Japanese yen, so they sell bond portfolios to maintain margins. The situation, especially the hedge funds that have made heavy bets on the yen market in advance, investors should pay attention to the current systemic risks, and it is recommended to wait and see with currency and enter the market cautiously.

  …

On February 21, a week before the US-Japan talks collapsed, conditions continued to deteriorate in European bond markets, with ten-year bond yields rising 14 basis points in Germany, 23 basis points in Italy and 33 basis points in Spain .

"Zhong Sheng, we made a total profit of close to 200 million US dollars this week. The whole of Europe looks crazy, and they are selling bonds everywhere. Even the 3A-level government bonds, I don't know what happened?" Indoors, the traders operating at night said to Zhong Shi with a smile on their faces. During this period, they continued to short the bond futures markets of European countries, and the profits they obtained had exceeded their principal investment.

3A-level bonds are the bonds with the highest credit rating, and there is basically no risk of default. Investing in this kind of bond is basically a risk-free investment. The soaring rate made these veterans who have been immersed in the bond market for many years unable to see why.

  Zhong Shi laughed, and then said half-jokingly and half-seriously: "If I were you, what would you do if you experienced interest rate hikes and yen losses?"

  One of the savvy traders immediately replied: "Shrinking the interest rate futures position, of course, or simply clearing all bond positions."

"That's the truth!" Zhong Shi clapped his hands approvingly: "If a certain fund has a large position in the U.S. bond market and has lost a lot this time, then they must reduce their positions in the European bond market, or even withdraw from Europe. That’s why the European bond market has fallen sharply in reverse recently.”

  Everyone told him this, and only then did he understand why the European market fluctuated in the opposite direction recently. Of course, this is only one of the reasons. More importantly, the entry of the Japanese consortium made these hedge funds, which were already in a state of panic, feel more pressure, so they retreated regardless of the fact that Europe cut interest rates.

"Continue to short and increase your position at the same time. At least 60% of the position must be held. I don't think the broker can say anything. After all, our account is still profitable. In March, we will start to reduce the position. By that time I'll re-evaluate the situation sometime, how about it, can it be done?" Seeing that they understood, Zhong Shi began to arrange the operation strategy again.

   "Okay!" The traders agreed one after another, and then bid farewell to Zhong Shi and went back to rest. It has become their practice to stay in the morning and talk about the market with Zhong Shi.

After the traders operating US bonds went to work, Louis followed Zhong Shi into the meeting room, showed Zhong Shi a copy of the Wall Street Journal, and took this opportunity to tell Zhong Shi: "The Japanese side announced that they will reduce their holdings by 5 billion. U.S. Treasuries in the U.S. dollar, it looks like yields are going to rise again at the open today."

  Five billion dollars? Zhong Shi frowned. Compared to the total economic volume of the United States, this amount of money is nothing more than a drop in the bucket, even compared to the entire bond market, it is just a drizzle.

The capital market in the United States is developed. In addition to the national bond market, there is also a corporate bond market. The types of bonds that pay interest can be divided into split interest bonds, split principal bonds, anti-split interest bonds, and anti-split principal bonds. In addition, there are a wide variety of derivatives instruments. The treasury bond market alone has hundreds of billions of dollars, not to mention the even larger corporate bond market.

"It seems that the Japanese are also aware of the risks in the bond market. Although the scale of the reduction is not large this time, it may be a signal that they may reduce their holdings in the future." Lewis rambled for a long time, Finally came to a conclusion.

   "You are right, but not quite right." Zhong Shi nodded, and then continued his words: "Have you ever thought about where the Japanese will go after the sale of this bond?"

"Exchanging it into Japanese yen... that's wrong!" Louis blurted out, but immediately realized that something was wrong. The exchange rate between Japanese yen and US dollar is at a historical high. If you exchange this money into Japanese yen at this time, no fool willing. "Since you don't even want to take risks on bonds, you can only store them in the bank for interest!"

"That's right!" Zhong Shi gave Louis a thumbs up. "Recently, there has been an obvious trend of inflation in the United States, so the Fed announced an interest rate hike. Although short-term interest rates cannot be compared with long-term interest rates, they are safe and risk-free. It is the first essence of foreign exchange management. But have you ever thought about it, after the money is magnified through the multiplier effect, it increases the liquidity in the market, and it still increases inflation expectations for the U.S. economy?"

  The so-called multiplier effect refers to the magnified effect of currency in the circulation system through continuous storage. For example, on the premise that the deposit reserve ratio is 10%, deposit 100 yuan in a bank, and the bank will lend 90 yuan after paying a deposit of 10 yuan, and then the 90 yuan will be circulated to the bank. After the deposit of 1000 yuan, it was circulated again... and so on, and finally formed a liquidity of 1000 yuan in the market.

Louis was horrified, and realized the danger of Japan's sale of government bonds. He couldn't help worrying: "If this is the case, then in the future, the yield in the bond market will rise, and the price of bonds will fall. These people will sell bonds and cause money in the market. More and more, wouldn’t the Fed’s rate hike be in vain?”

"No!" Zhong Shi said decisively: "If this is the case, then don't mention the macro-control of the economy. You must know that the Fed has hundreds of methods to solve this problem. Raising interest rates is the most gentle method. Among other things, just raising the reserve margin ratio by one point can withdraw hundreds of billions of dollars of funds from the market, which is enough to offset the losses caused by this multiplier effect.”

After a pause, Zhong Shi went on to say: "Of course, the deposit reserve ratio has too much influence. Under normal circumstances, the Federal Reserve will not use it easily. In the end, it will solve this problem by continuously raising interest rates. They only need to Reverse repurchases in the bond market can bring back billions or tens of billions of funds, which is enough to offset the impact of Japan’s sell-off of national debt.”

   "What if Japan continues to reduce its holdings of US treasury bonds!" Louis asked.

"Don't forget, why does Japan hold so many U.S. treasury bonds? If the trade deficit between the United States and Japan does not change for a day, Japan will have to hold so many U.S. treasury bonds, otherwise the yen will appreciate sharply. In fact The ultimate goal is to allow American auto parts to enter the Japanese auto industry, while opening up other markets.” Zhong Shi sneered, exposing the process and ultimate goal of the game between the two sides.

   "Then let's..."

   "Of course we increased our short-selling. We are confident, and the Japanese are at the forefront!" Zhong Shi touched his chin and said proudly.

  (end of this chapter)