Japanese selling one of the culprits

Japanese funds sold a record $34 billion in foreign bonds in the two weeks ended Feb 26, in a move that Bloomberg highlights as one of the many culprits behind the strains in the bond market.

Treasury yields are rocketing to levels seen before the pandemic, and selling by Japanese funds adds to a vicious cycle of even more offloading. It also triggers hedging by dealers on the other side of the trade, which in turn impacts crucial funding markets relying on bonds as collateral.

The strain highlights Japanese fiscal year end at the end of the month and potentially disruptive flows around it.

A ZeroHedge article on repos has been getting tremendous traction today and it's a must-read ahead of the Fed.

It doesn't touch on Japan, which could also be part of the puzzle.

Adding to the crunch are yen-based investors. They have been liquidating older Treasury positions, according to traders in Asia, who asked not to be identified as they aren't authorized to speak publicly. The impact in the repo market comes from how dealers absorbing the Japanese supply in old bonds -- those not used in benchmarks -- often sell current ones to hedge their positions.

Here's another good preview on Powell at 1705 GMT and the potential importance of the SLR exemption: