The JGB market was volatile since mid-Jan, but it is getting stable and yields start declining partly because new fiscal year starts in April and investors come back to the market. The 10yr yield was 0.395% at the end of March but it trades stably at around 0.3% now.
“While we are still concerned about the liquidity or sudden hike of volatility because the BOJ is buying massive amount of JGBs, we do not expect any change in the broader pattern of steadily declining volatility and downward pressure on yields because again the BOJ will continue to purchase close to 90% of new JGB issuance irrespective of price.”- said BofA Merrill Lynch
However the risk that the BOJ cannot buy JGBs as planned because of a lack of JGB sellers is increasing. For the first year of QQE banks became JGB sellers, and for the second year public sectors, Japan Post Bank, GPIF etc., reduced their JGB holdings. It is going to be more difficult for the BOJ to find JGB sellers in the third year.
The material has been provided by InstaForex Company – www.instaforex.com