Some pointed to the headlines that a Danish pension fund is planning to exit US Treasuries for the selloff in the UST and the equity markets. The odds of wholesale selling are extremely low as it is the proverbial nuclear option…MAD III. [MAD is the cold war acronym of Mutual Assured Destruction…MAD I was not good enough so MAD II was created]
The selloff commenced in Japan. As one headline stated The selling in Japan’s $7.6 trillion bond market began slowly, then seemed to hit all at once.
What started off as an unremarkable day in Tokyo quickly morphed into the most chaotic session in recent memory. While concerns about Japan’s fiscal position had been simmering for weeks, they suddenly boiled over with little warning, sending bond yields to all-time highs. Market participants are struggling to pinpoint an immediate reason for the selloff.
Japan did receive a “tepid response” to a 20-year debt auction earlier in the day, but the auction was far from “failing.”
Perhaps the question to ask is the global markets surfeit on sovereign debt, sovereign debt levels that keep on rising given the inability of governments to curtail spending?
Commenting about Greenland, there is widespread view that the US and Europe will reach a diplomatic solution, however the chaotic style of the White House is unnerving and disconcerting.
Speaking of potentially unnerving topics, a Supreme Court’s ruling on tariffs is now expected sometime after February 20 as the Court has begun its scheduled four-week recess according to Bloomberg.
As commented above, equity markets declined between 1.75% and 2.4% on a combination of the Treasury selloff and fears about Greenland.
What will happen today?
Last night the foreign markets were down. London was down 0.30%, Paris down 0.44% and Frankfurt down 1.18%. China was up 0.08%, Japan down 0.41% and Hang Seng up 0.37%.
Futures are down about 0.25% ahead of the President’s speech at Davos. The 10-year is up 3/32 to yield 4.27%.
