FLASH: Bank of Japan Announces "Foreign Bond Selloff" at 9:00 AM Tokyo Time

Source: Hal Turner

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The Bank of Japan issued a sudden announcement at about 3:00 PM eastern US time today (Thursday) telling the world they will conduct a Selloff of "Foreign Bonds" beginning at 7:00 PM Eastern US Time tonight, which translates into 9:00 AM Friday morning, in Tokyo.

This comes just three DAYS after China instructed their banks to "Dump Every Dollar" and eliminate their exposure to anything denominated in "Dollars." (Story Here)

This a calamity.

Bonds are the rock-solid, steel-reinforced-concrete foundation, of literally EVERY other financial instrument and transaction.     Bonds are the basis of    E V E R Y T H I N G.

Let me explain:

The bond market — particularly the market for high-quality government bonds (e.g., U.S. Treasuries) — serves as the foundational benchmark for virtually all other financial instruments. It establishes the risk-free rate and the yield curve (the term structure of interest rates), which act as the baseline “cost of money” against which every other asset is priced, valued, and hedged.

The Risk-Free Rate as the Universal Benchmark

Government bonds from creditworthy sovereigns (U.S., Germany, Japan, etc.) are treated as essentially default-free. Their yields therefore represent the risk-free rate—the theoretical minimum return an investor requires for tying up capital with zero credit risk.

This rate is the starting point for pricing everything else: 

Stocks and equities: In the Capital Asset Pricing Model (CAPM), the expected return on a stock = risk-free rate + β × equity risk premium.

Discounted cash flow (DCF) valuations of companies, projects, or real estate also start with the risk-free rate as the base discount rate, then layer on risk premia.

A rise in Treasury yields directly raises the hurdle rate for all risky investments, lowering present values.

Corporate bonds and credit instruments: Yield = risk-free (Treasury) yield of similar maturity + credit spread (compensation for default and liquidity risk).

Corporate, municipal, and emerging-market bonds are all quoted as spreads over the government curve.

Mortgages, consumer loans, and bank lending: Mortgage rates are typically the 10-year Treasury yield + a spread.

Auto loans, credit cards, and corporate borrowing move in tandem because banks and lenders fund themselves relative to the Treasury curve.

Derivatives: Interest-rate swaps, futures, and options are built directly on the government yield curve. The Black-Scholes model (and its variants) uses the risk-free rate to price options.

Currency forwards and cross-currency basis swaps embed interest-rate differentials derived from bond markets.

Currencies and FX: Carry trades and exchange-rate expectations are driven by interest-rate differentials between countries’ bond yields. Higher bond yields in one country tend to strengthen its currency.

In short, all other instruments can be conceptually decomposed as “risk-free bond + risk adjustment.”

The bond market supplies the risk-free component; everything else is the premium layered on top.

The Yield Curve as the “Cost of Funding”

The shape of the government yield curve (short-term vs. long-term rates) is the market’s collective view of future interest rates, inflation, and economic growth. It is the primary indicator of the economy-wide cost of capital and is used to:

• Price fixed-income securities of all types.

• Set discount rates in actuarial, pension, and insurance calculations.

• Determine repo rates and collateral values in the plumbing of the financial system (government bonds are the dominant form of collateral in repurchase agreements and derivatives clearing).

  
  

Supporting Evidence from Market Size and Expert Consensus

The global bond/credit market is roughly three times larger than the global equity market and far more liquid in many segments.  What China and Japan are now doing . . . . is SMASHING it.

Government bonds are the bedrock of capital markets: “serving as benchmarks whose yields influence other financial instruments like corporate bonds, mortgages, and derivatives. Many financial transactions use government securities as collateral for hedging against risk, and to guide pricing.”

Ray Dalio has repeatedly called the (U.S.) bond market “the backbone of all markets” because it sets the risk-free interest rate against which every other asset is measured.

Why This Relationship Is “Foundational”

When bond yields move, the entire pricing grid for stocks, real estate, private equity, infrastructure, derivatives, and loans shifts in response.

A sustained rise in Treasury yields raises borrowing costs economy-wide, compresses equity valuations, widens credit spreads, and can strengthen the currency.

A fall in yields does the opposite.

No other single market has this universal, mechanical transmission mechanism.

In essence, the bond market does not merely coexist with other financial instruments—it defines the baseline return and risk-free benchmark from which all other instruments derive their value and required compensation for risk.

This is why central banks, investors, and policymakers watch the bond market (especially the U.S. Treasury curve) more closely than any other for signals about the health and direction of the entire financial system.

First China, and now Japan, are taking financial SLEDGE HAMMERS to the US Bond Market.   Literally!   It will impact the  E N T I R E financial system and the E N T I R E financial stability of the United States (and by extension, the world.) 

As the Bonds are sold by China and Japan, the Bond Market will view US Bonds as "riskier."   That will FORCE interest rates on those bonds to go up, because otherwise Investors will not buy the Bonds. 

As the US Bond Market is forced to raise the amount it pays,  E V E R Y T H I N G else will have to go up, too.

But there isn't enough money to pay the new Interest rates.  Companies will not be able to refinance debt.  They will default.

Real Estate Commercial Mortgages will go up. Companies won't be able to afford the new Interest and they will default.

Layoffs will come.  

Without jobs, consumers will stop buying, causing massive economic downturn.

This will trigger layoffs in ALL industries, which will make everything worse.

Those Consumers won't be able to pay their mortgages, their auto loans, their credit card bills . . .  they will default.

As creditors see their income all defaulting, THEY will go under.

The financial destruction will be everywhere.