Japan is buying MASSIVE Amounts of Junk Credit
Source: YouTube · Eurodollar University · published Jun 24, 2024 · 19:59
Japanese banks are creating a corporate credit bubble by buying massive amounts of U.S. junk credit due to Federal Reserve rate hikes distorting markets 0:00-0:13.
Key Takeaways:
• Japanese banks now buy riskier CLO tranches (previously only AAA-rated) as they're forced to reach for yield due to rising funding costs 1:14-1:54 & 13:13-13:50
• Bank of Japan warned in 2019 about systemic risks even in AAA-rated CLOs, noting these structures haven't been tested by recession 3:38-3:59 & 5:11-5:33
• Japanese banks purchased record 14.7 trillion yen in foreign debt in 2023, completely reversing their 2022 selling pattern 16:17-16:32
This dangerous reach for yield creates bubble behavior that could trigger systemic problems if the U.S. economy weakens unexpectedly 19:16-19:34.
Sources:
- 0:00-0:13 Japanese banks buying junk credit due to Fed policy
- 1:14-1:54 CLOs and the reach for yield phenomenon
- 3:38-3:59 Bank of Japan's 2019 warnings
- 5:11-5:33 Untested nature of CLO structures
- 13:13-13:50 Movement down the risk spectrum
- 16:17-16:32 Record 2023 Japanese investment numbers
- 19:16-19:34 Fed policy irony and deflationary risks
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the biggest Japanese Banks and financial firms are buying massive amounts of junk credit Us corporate junk credit the federal reserve's rate hikes have distorted the marketplace so much these Japanese firms have found out they can no longer afford not to take huge risks and the results have been bubble type of defamations all across the system like any other bubble everyone participating in it tells themselves there are no risks or that they're totally manageable in the same way we're finding out with commercial real estate that can be a dangerous assumption this corporate credit bubble goes beyond commercial real estate and in many ways is a response to that one beginning to fall apart now Narin Chen bank's announcement last week wasn't some outlier Japanese Banks and financial firms have…