Risk On & Off Here & There

As the world turns, so do risk-on and risk-off trades around the world. Some are for the short term and based on technical factors. Others are for the long term and based on fundamentals. Let's take a quick tour around the world:

(1) Japan. While pessimists have been predicting an imminent sovereign debt crisis in the US, it seems to be unfolding in Japan currently. Amid a shrinking economy and growing mountain of debt, Prime Minister Shigeru Ishiba issued a harsh warning this week, "Our country's fiscal situation is undoubtedly extremely poor," adding, "worse than Greece's.” Japan's GDP shrank in Q1; and on Monday, the cost of borrowing increased after yields on its 40-year government bond reached highs last seen about 20 years ago (chart). The slump in Japanese bonds worsened today after the weakest demand at a government debt auction in more than a decade. The bid-to-cover ratio at Tuesday’s 20-year bond sale fell to the lowest since August 2012.