The sun also sets

Japan is worse? Bloomberg:

The world’s second-biggest economy shrank an annualized 12.7 percent last quarter, the government said Feb. 16, the biggest contraction since the 1974 oil crisis. Capital spending excluding software dropped 18.1 percent in the three months ended Dec. 31, the seventh quarter of declines, a separate government report showed on March 5.

A Cabinet Office report on March 11 may show machinery orders slumped 40.2 percent in January from a year earlier, according to a Bloomberg News survey.

Signs of a deepening recession dragged the Nikkei 225 Stock Average down 5.2 percent this week. Ten-year yields had a correlation of 0.7 with the Nikkei in February, Bloomberg data show. A value of 1 would mean the two moved in lockstep.

“While falling stocks normally push yields down, we need to be alert to the risk that Japanese financial institutions, which suffered heavy equity losses, will sell bonds to generate profits before the fiscal year ends this month,” said Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. in Tokyo. “Such selling of bonds may emerge as the Nikkei 225 comes closer to or falls below 7,000.”

Of course, Japanese banks own plenty of US bonds too. How high do US long term yields go when UST cancels auctions of TIPS, the inflation adjusted security, and tries to sell 100 billion worth of 30 year bonds — 15%? Unless of course, the Fed prints more money and buys the bonds itself.