On March 9, 2016, front month trading for Japanese government bond (JGB) futures was halted at 12:32 pm Tokyo time. Selling had become intense, tripping the Osaka Exchange’s dynamic circuit breaker. The total length of the halt was just 30 seconds, but fingers were already being pointed in the direction of the BoJ.
More than four months later, on July 28, trading was halted in all products for JGB’s for an estimated 20 minutes starting 9:51 am Tokyo time. While the exchange provided very little information, they eventually blamed a delay in system processing. Whether or not that was the proximate cause doesn’t really matter, as the context for the trading darkness was just hours ahead of BoJ’s latest monetary policy decision.
A few days after that, on August 2, JGB 10s experienced their worst single day selloff in 13 years. That ended a 3-day selling binge that cut 2.47 points off the price of the 10-year benchmark, the largest three-day losing streak since May 2013 shortly after QQE had begun.
You might get the sense from these events that trading liquidity in JGB’s, cash or futures, isn’t exactly the most robust these days. Violent swings in bond markets are never a good thing in either direction (just ask the US Treasury). It’s not just government bonds, however, that have obtained a direct and palpable disdain from institutions that used to be a major part of the financial plumbing in Japan.
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ August 23, 2016.
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