Japanese Government Bonds
Japanese Government Bonds or JGBs are the most popular market for government debt traders in Asia. The 10 year bond issued by Japan’s Ministry of Finance tends to be the price tracked by most CFD trading and spread betting companies, although bonds are issued with a range of maturities from two out to 40 years. The 10 year bond is also used as a benchmark by those investing in JGBs to measure the level of demand for other Japanese sovereign debt, such as 20 or 30 year bonds.
Japan is one of those lucky countries with a relatively tame local institutional investor base. This means that many new bond auctions are snapped up by large Japanese banks and pension funds, and the Japanese government has less of a problem financing its debts. However, Japan is one of the most heavily indebted of the G10 countries, and without this cushion of large corporations investing in JGBs it would have to pay much higher rates of interest for its debt.
Despite the inability of Japan’s business sector to recover from the popping of the bubble economy in 1989-90, Japan’s conservative political scene and large economy make its sovereign debt an attractive asset to own when other markets are taking a hammering. Investors will frequently turn to investing in JGBs when other Asian positions look less attractive.
Prices of 10 year Japanese Government Bonds will fluctuate according to political and economic feedback coming out of Japan. This will include in particular statements made by the Japanese government about its level of borrowing and taxation. The level of take up or appetite for new bond auctions carried out by the Ministry of Finance will also impact prices for those already investing in JGBs.
Ultimately, all government or sovereign bonds are measured according to the market’s perception of the ability of that government to settle its debts when the time comes – i.e. when debt tranches mature. Japan, despite its debt burden, is still considered one of the more stable issuers. Investors in Japan will also switch out of shares into bonds when they feel the economic or political picture in the country is starting to look more unstable. They will view JGBs as a defensive asset in times of turbulence.
You can trade the 10 Year JGB by using CFDs or spread betting.
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[London] Opening market report, September 21st, 2016
Wednesday’s session is underway and equity markets across Europe are cheering