Below is an excellent video on Kyle Bass' short thesis on Japanese government bonds (known as the "widowmaker" trade).
Bass has put forth his call since 2010, and we first saw the sell-off in short-dated Japanese government bonds recently when Bank of Japan announced its massive stimulus program. The Japanese equity market has been on a tear recently (see chart), of which investors have been dubbed by Bass as "macro tourists."
Nomura, however, had come up with their thesis on why Bass' trade will never materialize:
Just as John Paulson (and Bass) profited handsomely off the short trade on subprime, he had initially encountered skepticism from potential investors, and lost money before the biggest trade ever finally panned out.
If you look at JGB's historical and implied volatility recently, they are still at historical lows, indicating this trade may take longer than expected before it reaches the turning point.
What is your opinion? Will the "widowmaker" trade show the first sign of a crack in 2014? Take a vote here:
Note: This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer to buy or sell any securities.