JGBs suffer massive volatility this week

Japanese government bond market is where lot is happening, especially since Bank of Japan (BoJ) introduced three tiered negative rates in tune of -0.1%.

However, this week particular saw large increase in volatility, especially in longer end of the yield curve.

• Japanese 10 year yield dropped sharply yesterday to reach as low as -0.1%, from there today it is up almost 9 basis point trading just shy of zero mark.

• 20 year yield dropped in similar line but more than the 10 year. It dropped from 0.45% yesterday to as low as 0.3%, however now it is up almost 18 basis points and above the level from where buying started.

• 30 year yield dropped 24 basis points yesterday but today recovered all of that drop. Similar move was registered in 40 year segment too.

The phenomenon that caused the move is unclear and analysts are divided over it.

Below are the possibilities

• Expectations of further rate cut by Bank of Japan.
• Weaker than expected Chinese trade data sparked safe haven buying and selling the bonds back as risk aversion didn't materialize much.
• Japanese economic contraction might have sparked to safety.
• Position adjusting by large Japanese investors as they move to foreign bonds.
• We at FxWirePro, fundamental think with these above factors recent rise in inflation expectations might also be playing a role here.
• Lower liquidity in the market is also playing a role here.

Yen is however well bid, trading at 112.4 per Dollar.