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Liquidity in Japan’s government bond market is collapsing:
The JGB Liquidity Index jumped to 9.5 points on Tuesday, indicating the worst liquidity conditions on record.
This index has DOUBLED over the last 12 months.
Conditions in the $7.6 trillion bond market have deteriorated materially since 2022, as bond yields have experienced one of the most dramatic increases in history.
This comes as the Bank of Japan has significantly reduced its bond purchases, while Japanese life insurers have sold a record amount.
Meanwhile, foreign investors now reflect ~65% of monthly cash bond transactions, up from just 12% in 2009.
These investors have much shorter holding periods than traditional domestic buyers, increasing volatility.
Japan’s bond market is on the edge of a full-blown liquidity crisis.