Bank of Japan : Liquidity Indicators in the JGB Markets (November)

December 27, 2019

Financial Markets Department

Bank of Japan

Liquidity Indicators in the JGB Markets∗

JGB Futures Market

Chart 1: Transaction Volume and Bid-ask Spreads

Chart 2: Volume of Orders at the Best-ask Price and Price Impact JGB Cash Market

Chart 3: Dealer-to-client Transaction Volume

Chart 4: Inter-dealer Transaction Volume

Chart 5: Bid-ask Spreads of Dealer-to-client Transactions

Chart 6: Bid-ask Spreads of Inter-dealer Transactions

Chart 7: Total Observation Time of Bid-ask Spreads of Inter-dealer Transactions

Chart 8: Market Depth

Chart 9: Ratio of Issues by Total Observation Time of the Best-bid(Best-ask) Price of Inter-dealer Transactions

SC Repo Market

Chart 10: Scarcity of Specific Issues

• As for the definition of each indicator, refer to

Kurosaki, Kumano, Okabe, and Nagano [2015] "Liquidity in JGB Markets: An Evaluation from Transaction Data," Bank of Japan Working Paper Series, No.15-E-2, May 2015,

Sakiyama and Kobayashi [2018] "Liquidity in the JGB Cash Market: An Evaluation from Detailed Transaction Data," Bank of Japan Research Papers, March 2018.

Inquiries：Financial Markets Analysis Group, Coordination and Market Analysis Division,

Financial Markets Department （TEL：[phone]）

Chart 1

JGB Futures Market:

Transaction Volume and Bid-ask Spreads

(1) Transaction Volume

10	tril. yen	100 mil. yen	15
			Transaction volume (lhs)
				Trade size per transaction (rhs)
8					12

6

9

4

6

2

3

0

0

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

1. Bid-askSpreads

2.5 JPY cents

Lower liquidity		Daily average

Average of the widest 10 percent

2.0

1.5

1.0

0.5

0.0
Jan-12	Jan-13	Jan-14	Jan-15	Jan-16	Jan-17	Jan-18	Jan-19

Notes: 1. "Daily average" in (2) is the average of bid-ask spreads with a 1-minute frequency. "Average of the widest 10 percent" in (2) is the average of the widest 10 percent of the bid-ask spread with a 1-minute frequency.

2. 10-day backward moving average. Latest data as at end-November 2019.

Sources: QUICK; Osaka Exchange, Inc.; Nikkei Inc., "NEEDS."

Chart 2

JGB Futures Market:

Market Depth and Resiliency

(1) Volume of Orders at the Best-ask Price

unit

350

Lower liquidity

300

250

200

150

100

50

0
Jan-12	Jan-13	Jan-14	Jan-15	Jan-16	Jan-17	Jan-18	Jan-19

(2) Price Impact

900	CY 2012=100
Lower liquidity		Price impact
		Daily price range to transaction volume ratio
800

700
600
500
400
300
200
100
0
Jan-12	Jan-13	Jan-14	Jan-15	Jan-16	Jan-17	Jan-18	Jan-19

Notes: 1. (1) is calculated by taking the median of the volume of orders at the best-ask price with a 1-minute frequency.

1. "Price impact" in (2) is the average price impact with a 5-minute frequency. "Daily price range to transaction volume ratio" in (2) is daily price range (difference between the highest and the lowest prices) divided by transaction volume.
2. 10-daybackward moving average. Latest data as at end-November 2019.

Sources: Nikkei Inc., "NEEDS;" QUICK; Osaka Exchange, Inc.

20

15

10

5

0

CY2005

25

Chart 3

JGB Cash Market:

Dealer-to-client Transaction Volume

(1) Monthly Transaction Volume (Gross Amount Purchased by Clients)

50		tril. yen
						Super-long-term JGBs
45						Long-term JGBs
						Medium-term JGBs (foreign investors)
40						Medium-term JGBs (domestic investors)
35
30
25
20
15
10
5
0
CY2005	06		07		08			09		10				11			12		13		14		15		16		17		18		19

(2) Monthly Transaction Volume by Clients (Gross Amount Purchased by Clients)

tril. yen

City banks

Regional financial institutions

Investors

Foreigners

06 07 08 09 10 11 12 13 14 15 16 17 18 19 Notes: 1. Treasury Discount Bills, etc. are excluded from the transaction volume.

2. "Clients" include city banks, regional financial institutions, investors, and foreigners. Other institutions (government, Bank of Japan, Japan Post Bank, Japan Post Insurance, business corporations, other financial institutions, etc.) are excluded from "clients."

3. Latest data as at October-November 2019. Source: Japan Securities Dealers Association.

0 Jan-12

Chart 4

JGB Cash Market:

Inter-dealer Transaction Volume

(1) Daily Transaction Volume

12,000	100 mil. yen	%	70
					A: On-the-run bonds (lhs)
					B: Other (lhs)
					A/(A+B): Ratio of on-the-run bonds (rhs)

10,000							60
8,000							50
6,000							40
4,000							30
2,000							20
0							10
Jan-12	Jan-13	Jan-14	Jan-15	Jan-16	Jan-17	Jan-18	Jan-19

(2) Daily Transaction Volume of On-the-run Bonds by Maturity

2,500

2,000

1,500

1,000

100 mil. yen

5-year		10-year		20-year

500

Jan-13Jan-14Jan-15Jan-16Jan-17Jan-18Jan-19

Notes: 1. Daily transaction volume in (1) is the sum of 2-year,5-year,10-year,20-year,30-year, and 40-year JGBs via Japan Bond Trading.

2. Latest data as at November 2019. Source: QUICK.

Chart 5

JGB Cash Market:

Bid-ask Spreads of Dealer-to-client Transactions

(1) 5-year JGBs

15

10

5

JPY cents

Lower liquidity

0 Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19

(2) 10-year JGBs

30

25

20

15

10

5

JPY cents

0 Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19

(3) 20-year JGBs

60

50

40

30

20

10

JPY cents

0 Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19

Notes: 1. Quotations through Trade web as of 3:00 p.m. Dotted lines indicate the first/third quartile spreads between January 2010 and March 2013.

2. 10-day backward moving average. Latest data as at end-November 2019.

Source: Eikon from Refinitiv.

Chart 6

JGB Cash Market:

Bid-ask Spreads of Inter-dealer Transactions

(1) 5-year JGBs

3	bps
Lower		On-the-run
	liquidity
		First off-the-run

2

1

0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

(2) 10-year JGBs

3

2

1

bps

0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

(3) 20-year JGBs

3

2

1

bps

0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

Notes: 1. Figures indicate the average of bid-ask spreads with a 1-second frequency.

1. Bid-askspreads are calculated only for time periods in which both best-bid and best-ask prices were submitted.
2. 10-daybackward moving average. Latest data as at end-November 2019.

Source: Japan Bond Trading.

Chart 7

JGB Cash Market:

Total Observation Time of Bid-ask Spreads of Inter-dealer Transactions

(1) 5-year JGBs

100

% of total transaction time

80

60

40

Lower

liquidity

20

0

On-the-run

First off-the-run

Oct-15

Apr-16

Oct-16

Apr-17

Oct-17

Apr-18

Oct-18

Apr-19

Oct-19

(2) 10-year JGBs

100 % of total transaction time

80
60
40
20
0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

(3) 20-year JGBs

100 % of total transaction time

80
60
40
20
0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

Notes: 1. Figures indicate the total length of time (as percentage of total trading hours) in which both best-bid and best-ask prices were submitted. Total trading hours per day were shortened from 7h to 5h 20min, from 20th August 2018.

1. 10-daybackward moving average. Latest data as at end-November 2019.
2. Note that moving average figures for 20-30th August 2018 include data both prior to and after the change in trading hours. Source: Japan Bond Trading.

Chart 8

JGB Cash Market: Market Depth

(1) Best-worst Quote Spreads of Dealer-to-client Transactions

bps
1.2
		Lower liquidity
1.0
0.8
0.6
0.4
0.2
0.0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

(2) Volume of Orders at the Best-ask(Best-bid) Price of Inter-dealer Transactions

100 mil. yen

2,500

Lower liquidity		Volume of orders at the best-ask price
		Volume of orders at the best-bid price

2,000

1,500

1,000

500

0
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19

Notes: 1. (1) is calculated by averaging the spreads between the best and worst quotes offered by dealers against each client request. Transactions with spreads wider than 10 bps are excluded from the calculation.

1. (2) is calculated by summing up the median of volume of orders at the best-ask(best-bid) price with a 1-second frequency per issue. 10-day backward moving average.
2. Latest data as at end-November 2019.

Sources: Yensai.com; Japan Bond Trading.

Chart 9

JGB Cash Market: Ratio of Issues by Total Observation Time of the Best-bid(Best-ask) Price of Inter-dealer Transactions

(1) Ratio of Issues by Total Observation Time of the Best-bid Price

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19
	0-20%		20-50%		50-80%	80-100%

(2) Ratio of Issues by Total Observation Time of the Best-ask Price

100%

90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Oct-15	Apr-16	Oct-16	Apr-17	Oct-17	Apr-18	Oct-18	Apr-19	Oct-19
	0-20%		20-50%		50-80%	80-100%

Notes: 1. Figures indicate the percentage of issues by daily observation time (as percentage of total trading hours) of best-bid(best-ask) prices. Total trading hours per day were shortened from 7h to 5h 20min, from 20th August 2018.

1. 10-daybackward moving average. Latest data as at end-November 2019.
2. Note that moving average figures for 20-30th August 2018 include data both prior to and after the change in trading hours. Source: Japan Bond Trading.

Chart10

SC Repo Market: Scarcity of Specific Issues

(1) GC-SC Repo Rate Spreads

0.20

0.15

0.10

0.05

%

0.00 Apr-13Oct-13Apr-14Oct-14Apr-15Oct-15Apr-16Oct-16Apr-17Oct-17Apr-18Oct-18Apr-19Oct-19

1. SC Repo Rates

0.10 %

0.05

0.00

-0.05

-0.10

-0.15

-0.20

-0.25

-0.30

-0.35

-0.40Apr-13Oct-13Apr-14Oct-14Apr-15Oct-15Apr-16Oct-16Apr-17Oct-17Apr-18Oct-18Apr-19Oct-19

Notes: 1. SC repo rates are calculated by volume weighted average of all traded issues for S/N trades (until April 2018） or

T/N trades (from May 2018). GC repo rates are defined by the Tokyo Repo Rate (until April 2018; T/N, from May; O/N).

2. The bold lines indicate 10-day backward moving average. Latest data as at end-November 2019.

Sources: JBond Totan Securities; Japan Securities Dealers Association.