KYLE BASS: One Of The Biggest Banks In The World Wants Me To Close My Japan Trade
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Prominent hedge fund manager Kyle Bass – whose big trade right now, known as the "widowmaker" in market circles, is betting against Japanese government bonds – gave a talk at the University of Chicago last week.
During the talk, someone asked him about the Japan trade. People call it the "widowmaker" because everyone looks at Japan's huge pile of public debt – the largest in the world as a percentage of GDP – and bets that it has to blow up. The problem for these traders, of course, is that it never does.
Bass relayed an interesting story about a conversation he had with a counterparty at "one of the biggest banks in the world."
The gist of the story is that "27-year-old kids" have been selling default protection on Japanese government debt for insanely cheap – too cheap, thinks Bass – and that the banks are starting to realize that maybe they are underestimating the risk associated with a blowup in the Japanese bond market.
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