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Japan ponders closing gap between JGB auctions and issuance - sources
March 21, 2017 / 4:03 AM / in 7 months

Japan ponders closing gap between JGB auctions and issuance - sources

TOKYO, March 21 (Reuters) - Japan’s Ministry of Finance is considering shortening the period between the auction and the issuance of some Japanese Government Bonds, sources with knowledge of the matter said, a move that is expected to reduce risk for bond brokers.

JGB brokers have long wanted such a step because the Bank of Japan, by far the largest buyer of JGBs because of its massive bond purchase scheme, does not accept the bonds that have been auctioned but are yet to be issued, compelling brokers to hold a large number of bonds over the interim period.

The BOJ buys bonds in the secondary market and not at auction to avoid directly monetising Japanese government debt.

The proposed shortening of issue times would come as market players grow more wary of the growing risks of holding bonds.

Global bond prices have come under pressure partly because the U.S. Federal Reserve is raising interest rates and also because the European Central Bank is on course to scale back its bond-buying stimulus campaign.

The MOF plans to bring forward the issue date of all the JGBs that are currently issued more than two business days after auction.

That includes the JGBs that are issued in March, June, September and December as well as all two-year bonds. Some of them are issued weeks after auction.

That means brokers are burdened with considerable risk, given that in many cases there are few buyers except the BOJ -- because BOJ policy has kept yields too low.

Since the BOJ started massive easing in 2013, many bond traders have been engaged in the so-called BOJ trade, in which they buy JGBs at the MOF auction and flip them to the BOJ very quickly.

The Ministry plans to float the idea in an upcoming meeting with market players this week, the sources said. (Reporting by Takaya Yamaguchi, writing by Hideyuki Sano; Editing by Eric Meijer)

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