TOKYO :Japan’s finance ministry said on Wednesday it proposed cutting the issuance of super-long government bonds in liquidity enhancement auctions in an effort to soothe market concerns.
Japanese government bonds (JGB) have been under pressure in recent months due to global concerns over widening government deficits, domestic political uncertainty and declining bond purchases by the Bank of Japan.
The proposal, presented in a meeting with primary dealers, calls for reducing the issuance of off-the-run bonds with remaining maturities between 15.5 years and 39 years to 250 billion yen ($1.69 billion) from 350 billion yen now per auction.
The ministry suggested reallocating the reduced issuance to shorter-term bonds with maturities between one year and five years in liquidity enhancement auctions, which are designed to improve the liquidity of specific off-the-run JGB issues that are less actively traded in the market.
A finance ministry official told reporters after the meeting that the proposals received wide support from the primary dealers, or financial institutions that act as market makers.
Many participants in the meeting cited a poor supply-demand balance for super-long JGBs, the official said.
Last month, the ministry canvassed opinions from primary dealers offering two options for those bonds, either to cut the auction issuance amount to 250 billion yen or eliminate it entirely.
The step followed the ministry’s decision in June to cut the scheduled sales of super-long bonds in a rare revision to this year’s issuance plan after a global bond market rout that led to a spike in super-long JGB yields.
The ministry on Wednesday reiterated in the meeting that it was not in the process right now of implementing buybacks of super-long JGBs issued in the past at low interest rates, saying that there are some challenges to launching such a step.
Buying back previously issued, low-coupon super-long JGBs would enhance liquidity in those bonds and allow bond dealers to trade their securities more easily.
($1 = 148.0200 yen)
