Apparently, there are days when no one trades some Japanese government bonds; Could China devalue their currency or sell US Treasurys?

Some 80% of 10-year Japanese government bonds are held by the Bank of Japan. And apparently there are days when no one trades those 10-year bonds because there is no point of trading it. Why? Well, because the Bank of Japan has a policy to control yield curves and since they hold majority of it there are hardly any price movements.

But is also claimed that there are days when the 2-year bonds aren’t traded. That is interesting because the Bank of Japan only holds a small proportion of 2-year bonds. How to traders keep their jobs then? They trade bond futures instead.

Meanwhile, there are market noises saying China could devalue their currency or sell US Treasurys in response to the trade tariffs.

Would China really do any of it? There is little point of devaluing their currency given they want to increase trading of oil in their own currency.

And why would they sell US Treasurys before maturity unless they want to make an effective loss? They could stop buying US government bonds but given the way the central banks bond holdings work it would have an impact on their own issuances. What is more likely is they buy shorter (2-year being most popular) issuances and squeeze financial conditions by increasing the yields on US 10-year issuances.

Leave a Reply

Your e-mail address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.