Mrs. Watanabe Can Stand Many Things, But Not Zero Percent

Good piece posted on Bloomberg about how Japanese retail is chasing yield in Turkey.

It’s those 10 percent-plus rates across the Turkish bond curve — among the highest in major emerging markets — that are luring Mr. and Mrs. Watanabe to the country’s assets.

Starved for return by near-zero rates at home, individual investors have propelled a 27 percent jump in Japanese mutual funds’ investments in lira-denominated bonds this year. At 50.8 billion yen ($450 million) through August, it’s poised to be the biggest annual increase since 2012, according to data from Japan’s Investment Trusts Association.  – Bloomberg

Another example that the zeitgeist of the global markets is yield chasing.

As long as there’s a decent economic narrative — the current being “synchronized global economic expansion” — valuations, fundamentals, and event risk take a back seat to the yield seekers.

Surely Ms. Watanable knows about Turkey’s twin deficits and its highest inflation in almost a half decade, not mention the risk of being pulled into Middle East war.   Ten percent can forgive a multitude of sins in today’s NIRP, ZIRP, and one percent world.  Until it doesn’t.

Seeing Japanese retail pile into a market usually was a signal of a top back in the day.

Turkey_Ms Wantabe

Nevertheless, we do not see an end to the yield-seeking zeitgeist until U.S. policy rates hit 3 percent plus (the market thinks never), the Fed balance sheet shrinks at least ten percent, and Euros are ready to roll on QT.   EMs are the place to be in this environment.

A few yuuuge hiccups along the way?  Absolutely.  We are expecting one this month.

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