5IF WJFXT FYQSFTTFE JO UIFTF QBQFST BOE QSFTFOUBUJPOT BSF … · 5if wjfxt fyqsfttfe jo uiftf...
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Market Liquidity of Japanese Government Bonds
Ministry of Finance Japan
10th Annual OECD-WB-IMF Global Bond Market ForumApril 2008, Washington DC
1
While debt outstanding of JGBs is huge, its market liquidity is said to remain relatively low compared with foreign counterparts.
Low turnover ratioWide bid-offer spreadRelatively small presence of foreign investors in the JGB cash market compared with the JGB futures marketOccasional squeezes of specific issues in the JGB cash and repo markets
2
Government Bonds Outstanding and Turnover
(Source) Japan: MOF, Japan Securities Dealers Association US: US Treasury, FRB(Note 1) US Government Bonds outstanding is denominated in yen by Government Expenditure Rate ($1=\116)(FY2007)(Note 2) Transactions exclude repo transaction
(CY)
600659 673
459 485 504
3.30 3.07 3.32
31.5630.17
33.14
0
100
200
300
400
500
600
700
800
2004 2005 2006
(\ trillion)
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00(Transactions/
Outstanding)
Outstanding(Japan)
Outstanding(US)
Turnover(Japan)
Turnover(US)
(times)
3
Comparison of bid-offer spread in the secondary market (Japan, USA, Germany)
(Note)
Figures for Japan are based on responses to questionnaire of 16 companies which are JGB Market Special Participants.
Bid-offer spread above is only indicative prices at a time of research.
EUR 0.100USD 0.031Average JPY 0.257
EUR 0.025USD 0.016Average JPY 0.055
EUR 0.025USD 0.016Average JPY 0.032
EUR 0.015USD 0.008Average JPY 0.011
bid-offer spread
bid-offer spread
bid-offer spread
bid-offer spread
30-year
10-year
5-year
2-year
Germany(per face value 100€)BLOOMBERG BONDTRADER
( March 19, 2008 )
USA(per face value 100$)
BLOOMBERG BONDTRADER
(March 19, 2008)
Japan(per face value ¥100)
Survey of JGB Market Special Participants(March 3, 2008~March 27, 2008)
EUR 0.100USD 0.031Average JPY 0.257
EUR 0.025USD 0.016Average JPY 0.055
EUR 0.025USD 0.016Average JPY 0.032
EUR 0.015USD 0.008Average JPY 0.011
bid-offer spread
bid-offer spread
bid-offer spread
bid-offer spread
30-year
10-year
5-year
2-year
Germany(per face value 100€)BLOOMBERG BONDTRADER
( March 19, 2008 )
USA(per face value 100$)
BLOOMBERG BONDTRADER
(March 19, 2008)
Japan(per face value ¥100)
Survey of JGB Market Special Participants(March 3, 2008~March 27, 2008)
4
143 trillionyen20%
Total715 trillion
yen
143 trillionyen
384 trillonyen
572 trillonyen
220 trillionyen
FY2004 FY2007 FY2004 FY2007
1,040 trillionyen
590 trillionyen463 trillion
yen
487 trillionyen
CY 2004 CY 2007 CY 2004 CY 2007
<JGB market > <Futures market >
(Note) Excluding inter-dealers’ transaction. Excluding repo transactions and FBs. (Source) Japan Securities Dealers Association, Tokyo Stock Exchange
FY 2004 FY 2007 CY 2004 CY 2007
double
487trillionyen51%
Total950 trillion
yen 1,040trillion yen
64%
Total1,630 trillion
yen
Foreign Investors Domestic Investors
1.5 times
Foreign Investors Domestic Investors
Foreign Investors Presence in the JGB Secondary Market
220trilliom
yen36%
Total604trillion
yen
Foreign Investors
Domestic Investors
5
- 5.0
- 4.0
- 3.0
- 2.0
- 1.0
0.0
1.0
12/1
8/00
03/1
9/01
06/1
8/01
09/1
7/01
12/1
7/01
03/1
8/02
06/1
7/02
09/1
6/02
12/1
6/02
03/1
7/03
06/1
6/03
09/1
5/03
12/1
5/03
03/1
5/04
06/1
4/04
09/1
3/04
12/1
3/04
03/1
4/05
06/1
3/05
09/1
2/05
12/1
2/05
03/1
3/06
06/1
2/06
09/1
1/06
12/1
1/06
03/1
2/07
06/1
1/07
09/1
0/07
10- year JGB(current)
5-year JGB(current)
(%)
Historical Changes in Special-Collateral Repo rate (Over night)
(Source) Bank of Japan(Note) All rate are only indication rate.
6
Too Many Issues per ProductMonthly issues of 2, 5, 10 and 20 year JGBs → 12 issues per year per productSpecific issues are held by certain investors and seldom available in the market
Certain asset classes (Ultra Long and JGBi) are still in a development stage and their outstanding to be further accumulated.Business practices not accepting “Fail” to occur
What are the backgrounds?
7
Number of securities remained and annual number of securities issued in major countries
2-year 12 24 12 24 2-year 13 24 2-year 4 8 Syort-term 1 5 2-year 1 2(up to 7year)
5-year 8 44 max12 max60 3-year 2 9 5-year 3 11 Middle-term 1 7 5-year 2 9(7 year to 15 year)
10-year 6 88 max12 max120 5-year 13 56 10-year 2 22 Long-term 2 30 10-year 2 18(beyond 15 year)
20-year 7 93 max12 max240 10-year 4 32 30-year 1 11 Syort-term inflation index 0 0 15-year 1 5(up to 7 year )
30-year 2 27 2 60 30-year 2 46 1 1Middle-term inflationindexed bonds 0 1 30-year 0 4(7 year to 15 year)
40-year 1 1 1 1 1 3 0 1Long-term inflationindexed 3 13 50-year 0 1(beyond 15 year)
15-year CMT 3 40 2 30 2 15 0 1
JGBi 4 14 4 40 1 4 0 1
0 3 0 6
0 1
4 3
Total 43 331 max57 max575 Total 38 192 Total 9 53 Total 7 56 Total 10 51
(SOURCE)Japan:MOF、U.S.A、U.K.、France:Debt Management Office HP、Germany:Central Bank HP
(NOTE2) The maximum annual number of securities issued in Japan is based on FY 2008 JGB issuance plan.
(NOTE3) Long-term bond in U.K. include 13 issues of Rump gilts
annualnumber ofsecurities
issued
5-year inflationindexed bonds
FranceGermanyJapan U.S.A U.K.annual
number ofsecurities
issued
annualnumber ofsecurities
issued
number ofsecuritiesremainded
5-year inflationindexed bonds
10-year inflationindexed bonds
number ofsecuritiesremainded
maximumannual numberof securities
issued
number ofsecuritiesremainded
number ofsecuritiesremainded
annualnumber ofsecurities
issued
annualnumber ofsecurities
issued
number ofsecuritiesremainded
maximumnumber ofsecurities
issued
30-year inflationindexed bonds
(NOTE1) Japan:annual number of securities issued(FY 2007)、number of securities remained(at the end of March, 2007)、U.S.A.:annual number of securities issued (CY 2007)、number of securitiesremained(at the end of December, 2007)、 Germany:annual number of securities issued(CY 2007)、number of securities remained(at March, 2008)、U.K.:annual number of securities issued(CY 2007)、number of securities remained(at the end of December, 2007)、France:annual number of securities issued(CY2007)、number of securities remained(at the end of March, 2008)
10-year floatingrate
4-year inflationindexed bonds
10-year inflationindexed bonds
15-year inflationindexed bonds
10-year inflationindexed bonds
20-year inflationindexed bonds
30-year inflationindexed bonds
10.4%
27.7%
14.3%
9.2%6.6%
13.3%
8.0%
3.9%
3.2%
10.2%
5.4%
8.7%
6.5% 1.1% 1.6%
1.2%
1.9%
1.5%
7.6%
0.9%
3.0%
1.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Japan U.S.A. U.K. France Germany
40 years or more
from 30 to 40 years
from 20 to 30 years
from 10 to 20 years
Inflation- Indexed
Floating- rate
remaining tomaturity
0.0%
Inflation Indexed and Super Long as a Proportion of Total Outstanding Debts
(Source)Japan:MOF U.S.A, U.K., France:Website of relevant governments(Note1)Non-marketable bonds are excluded. (e.g. bonds for individual investors)(Note2)In U.K., "40 years or more" includes perpetual gilts.(Note3)Japan,:Dec. 2007 U.S.A., Germany: Jan. 2008 U.K., France: Dec. 2007
9
Generally, the JGB market has provided a destination for safe heaven investment.There is a tendency of polarization in the JGB market: buying shorter maturity products (low delta) and selling longer maturity products, CMT and JGBi (unwinding by highly leveraged foreign hedge fund for the risk reduction purpose).
Negative swap spread for Super LongDrastic undervaluation of CMT and JGBi
The recent financial turmoil highlighted the liquidity of specific asset classes of JGBs.
10
Historical Changes in SWAP Spread
△ 0.35
△ 0.25
△ 0.15
△ 0.05
0.05
0.15
0.25
0.35
0.45
2006
/10/
120
06/1
0/21
2006
/11/
1020
06/1
1/30
2006
/12/
2020
07/1
/920
07/1
/29
2007
/2/1
820
07/3
/10
2007
/3/3
020
07/4
/19
2007
/5/9
2007
/5/2
920
07/6
/18
2007
/7/8
2007
/7/2
820
07/8
/17
2007
/9/6
2007
/9/2
620
07/1
0/16
2007
/11/
520
07/1
1/25
2007
/12/
1520
08/1
/420
08/1
/24
2008
/2/1
320
08/3
/420
08/3
/24
2008
/4/1
3
40-year
30-year
20-year
10-year
5-year
2-year
10-year19.4b.p
5-year24.0b.p
2-year33.7b.p
30-year▲6.3b.p
20-year▲0.2b.p
40-year▲11.7b.p
as of Apr. 18
11
Market Price of 15-year CMT
96.0
97.0
98.0
99.0
100.0
101.0
102.0
05/22/07 06/22/07 07/22/07 08/22/07 09/22/07 10/22/07 11/22/07 12/22/07 01/22/08 02/22/08 03/22/08
15Y45th(α▲45bp)
15Y46th(α▲40bp)
15Y47th(α▲45bp)
12
Interest Rate on JGBi
- 0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
04/3 04/6 04/9 04/12 05/3 05/6 05/9 05/12 06/3 06/6 06/9 06/12 07/3 07/6 07/9 07/12 08/3
(%)
Compound interest rateof JGBi
1.389%
0.098%
1.291%
8th7th6th Reope1st 2nd 3rd 4th 5th 9th 10th Reopen 11th 12th Reopen 13th
Compound interest rateof 10- year JGB
14th Reopen
as ofApr.18
Break- even infration rate
15th
13
CPI Expectations & BEI
(Note) QSS: QUICK Survey System
- 0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Apr-
06Ma
y-06
Jun-
06Ju
l- 06
Aug-
06Se
p-06
Oct-
06No
v-06
Dec-
06Ja
n-07
Feb-
07Ma
r-07
Apr-
07M
ay- 0
7Ju
n-07
Jul- 0
7Au
g-07
Sep-
07Oc
t-07
Nov-
07De
c-07
Jan-
08Fe
b-08
Mar
- 08
Apr-
08
%
as of Apr.18
0.098%
11th8th Reopen
Break- even inflation rate (BEI)
9th 10th Reopen 12th Reopen
1.022%
13th
10 year average core CPI expectations inQSS Report
10 year average core CPI expectations - BEI
14th Reopen
0.55%
1.12%
1 year average core CPI expectations inQSS Report
15th
14
Re-opening as a general rule (30 and 40 year JGB, CMT and JGBi)Auction for Enhanced-liquidity: expanding target issues (JGBswith remaining maturities 6-29 year, excluding those with remaining maturities 9-11 and 19-21)Special Auction for Enhanced-liquidity in order to respond to such temporal lack of market liquidity as seen in the squeezeBuy-back program: annual buy-back amount increased to 3.0 trillion yen from 1.8 trillion yen, focusing on CMT and JGBiEfforts to diversify investors bases especially for CMT and JGBi
The MOF, Japan has adopted certain policy measures to enhance market liquidity of JGBs.
15
ReopeningIntroducing Reopening as a general rule
JGBi (Feb. 2007-)30-year JGB (Jul. 2007-)15-year CMT (Feb. 2008-)40-year JGB (May. 2008-)
Issuance calendar and Reopening Style of JGBi, 30-year JGB, 15-year CMT and 40-year JGB
<Issuance calendar and Reopening Style of JGBi, 30- year bonds and 15- year CMT>(trillion yen)
Apr. May Jun. Jul. Aug. Sep. O c t. Nov. D ec . Jan. Feb. Mar. Total
0.5 0.5 0.5 0.5 0.5 0.5
new issue new issue reopen new issue new issue reopen
0.6 0.6 0.6 0.6
new issue reopen new issue reopen
0.6 0.6 0.6 0.6
new issue reopen new issue reopen
0.2 0.2
reopen* reopen*
* To the first issue (0.1 trillion yen, Nov, 2007)
2.4
2.4
3.0
30- year JGB
JGBi
15- ye ar CMT
0.440- year JGB
16
Market発行当局
Enhancing Market LiquidityBuy-back and Auction for Enhanced-liquidity Function Together like Two Wheels of a Cart
Regular Issuance
Regular Redemption
Auction for Enhanced-liquidity・Expand target issues (total \1.2 trillion)
Remaining maturity:11 to 16-year → 6 to 29-year
Buy-back・The total Buy-back amount will be expanded to about \3 trillion from \1.8 trillion.
・Focus on 15-year CMTs
Debt Management
Office
17
Auction for Enhanced-liquidityMOF conducts the Auction for enhanced-liquidity
(100 billion yen per month)
Target Issues20-year JGBs with approx. 11-16 years remaining to maturity (Apr. 2006-)JGBs with remaining maturities from 6 to 29-year (Apr. 2008-)(excluding JGBs with maturities from 9 to 11-year and 19 to 21-year, inflation-indexed bonds, and 15-year CMTs)
Special Auction for Enhanced-liquidityEstablishing a scheme of Special Auction for Enhanced-liquidity in FY2008 in order to respond to such temporal lack of market liquidity as seen in the squeezes.
18
Buy-back ProgramExpanded to include all fixed-rate JGBs starting Jan. 2006 (30-year JGB became eligible on April 4, 2008).Increased Buy-back amount from 100 billion yen/month to 150 billion yen/month from Apr. 2006.Expanded to include all CMTs and JGBis from Dec. 2006.Increased Buy-back amount from 1.8 trillion yen to about 3.0 trillion yen, focusing on 15-year CMTs and JGBis in FY2008.
(billion ye n pe r month )
150
100
50
Fixe d- rate JGB sdue FY2008
All fixe d- rate JGB s
All C MTsAll JGB is
(\50 billion )
All fixe d- rate JGB s(\100 billion )
All C MTs(\1.2 trillion / ye ar)
All JGB is(\0.6 trillion / ye ar)
All fixe d- rate JGB s(e xc luding 40- ye ar JGB s)(\1.2 trillion / ye ar)
Jan . 2006 Apr. 2006 D e c . 2006 Apr. 2008
19
PensionFunds26.93.9%
PublicPensions
75.211.0%
Life and NonlifeInsurance
125.918.4%
Banks, etc270.739.6%
BOJ65.19.5%
Fiscal LoanFund16.52.4%
Foreigners49.97.3%
Households36.05.3%
GeneralGovernment
(excludePublic
Pensions)2.30.4%
Others15.92.3%
(\ trillion )
PensionFunds19.83.5%
PublicPensions
46.08.1%
Life andNonlife
Insurance47.08.2%
Postal LifeInsurance
50.18.8%
Banks, etc138.924.4%
PostalSavings
87.615.4%
BOJ84.114.8%
Fiscal LoanFund53.59.4%
Foreigners20.03.5%
Households14.62.6%
Others6.91.2%
GeneralGovernment
(excludePublic
Pensions)1.40.2%
Total 569.9 trillion yen
From preliminary figures of the end of December 2007, Banks, etc includes Japan Post Bank. Life and Nonlife Insurance includes Japan Post Insurance.Bank of Japan “Flow of Funds”
The end of Mar. 2004
Total 684.3 trillion yen
(QE)
The end of Dec. 2007
Breakdown of JGB Holders
(Note)
(Source)