Bond ETN Pricing In More Abenomics
Benzinga | Jul 18, 2013 10:29AM ET
Abenomics, the colloquial term for Japanese Prime Minister Shinzo Abe's agenda to rejuvenate the world's third-largest economic, could get a boost this weekend.
That is when Japanese voters head to the polls to decide which political party will gain control of Japan's upper house of parliament.
It is widely expected that Abe's Liberal Democratic Party will take a commanding majority of the upper house this Sunday, ending Japan's hung parliament scenario in the process.
Ending the hung parliament could give Abe the political leverage to pursue even bolder economic reforms, which would likely include further weakening of the yen. That would be a boon for ETFs such as the WisdomTree Japan Hedged Equity Fund (DXJ) and the db X-trackers MSCI Japan Hedged Equity Fund (DBJP), but a couple of unheralded exchange traded notes, or ETNs, are already telling Japan bulls that they may get the result they want from this weekend's election.
The PowerShares DB 3x Japanese Govt Bond Futures ETN (JGBT) is up about two percent in the past month while its unleveraged cousin, the PowerShares DB Japanese Govt Bond Futures (JGBL) has traded modestly higher. Those gains are not jaw-dropping, but the performances could be a sign that Japanese bond markets are pricing in a landslide victory for Abe's LDP this weekend.
There is more evidence to support that assertion. Credit-default swaps that insure Japanese government bonds for five years slid 13 basis points in the past month to 69 basis points Wednesday, Reuters reported .
USD/JPY is trading near levels seen around April 21 before the pair made its ascent to its May high in the 103.6 area. In this case, investors will also want to monitor to JGBT because, in May, the ETN started falling before the yen started rising, serving as a warning sign to what was a stunning, though short-lived increase in the Japanese currency.
Equity investors will like to know that from April 22 to May 21 as the yen was tumbling against the greenback, DXJ gained over 11 percent.
BY Todd Shriber, ETF Professor
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