David R. Kotok
Wed Nov 16, 2022

“BOJ's buying power faces limits in fight against bond vigilantes: Central bank’s ownership exceeded 100% of instruments issued”



That is the headline from NIKKEI Asia, found at this link: We thank Peter Boockvar for calling it to our attention in today’s Boock Report, “A Bunch of Things" ( 
We offer this quick note. That act is absolutely bizarre in central bank history. We cannot find a prior example in the history of central bank over the last century. 
Here’s the trade. The central bank of Japan reached a holding limit of 100% of an outstanding issue of Japanese government debt. So it then loaned the security to another institution that wanted to borrow it so they could sell it short. They sold short, and the BOJ bought it, which meant that the holdings of the BOJ exceeded 100% of the outstanding amount of the issue in question. 
All this is recited in the report. I didn’t see the transaction and didn’t audit the BOJ details, so this commentary is based on the research note linked above. That said, the research source is usually a reliable and creditable source.
We cannot find any significant market valuation change from this news item. And we have no evidence that other central banks engage in similar behavior. But we wonder what it means for future movements in interest rates in the major markets of the developed world when a significant central bank has engaged in this type of behavior.  
Time will tell. But there is some old Wall Street wisdom: “You never see just one cockroach, and remember, they breed in the dark.”

David R. Kotok
Chairman & Chief Investment Officer
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