No trades (none!) were reported overnight in the benchmark 10Y Japanese Government Bond (JGB) for the third straight day.
This is the longest such occurrence since 1999 when it became the benchmark.
Trading volumes in JGBs have dried up over the years as the BOJ scooped up sizable chunks of the debt to keep a cap on yields, now holding just shy of 50% of all JGBs.
Simply put, as one veteran JGB trader remarked privately to us, "there is no [cash] market anymore."
Traders also lack the incentive to trade benchmark 10-year notes because they expect yields to rise as the Fed aggressively tightens monetary policy, according to Mitsubishi UFJ Morgan Stanley Securities.
“The BOJ’s fixed-rate operations have become the JGB trading floor,” said Katsutoshi Inadome, a strategist at Mitsubishi UFJ in Tokyo.
“Players are guaranteed to find a solid buyer who also buys large lots."
Bid-ask spreads for JGBs have exploded since March as inflation fears ripped through global bond markets (but BoJ remains stuck in its easing policy framework)...
Finally, we note that the issue of diminishing liquidity isn’t limited to Japanese bonds.
Bank of America analysts warned in a note this month that shrinking trading volumes in the US Treasury market may be one of the greatest threats to global financial stability.