JGBs, borrowing fees move higher

Volume Weighted Average Fee (VWAF) hits 29bps

The volume weighted average fee for Japanese government bonds hit 29bps on 3 February 2023, the highest level for many years. Liquidity in the JGB market has declined over the past few months due to the Japanese government's decision to widen its target range on its 10yr bond to +/- 50bps. The practice of yield range regulation was first implemented during 2016 to stimulate growth, inflation, and general lending activity during a low interest rate environment.

Trading in JGBs has reportedly become increasingly difficult of late. Because yields rise when prices fall, the government has been forced to buy vast quantities of bonds to defend the upper limit, thereby impacting market liquidity. The size of the market interventions by the central bank frequently move the market, so until the central bank has completed its daily operations, market participants are reportedly sitting on the side lines.

Volume average weighted fees for JGBs last experienced a notable increase at the beginning of November 2022 when fees increased from 12bps to 22bps. This increase tied in with market speculation that the central bank would shift their policy and cease regulating the yield. Average fees for JGBs have increased as investors look for additional sources of liquidity and place directional trades, speculating that yields will move higher if the bank changes its policy. The Japan (Government) (0.8% 20-Mar-2042) (J2S39LUS1) is the highest revenue generating JGB of the year so far.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.