July 27, 2018

BOJ Offers To Buy Unlimited Bonds After Bizarre Delay As Yield Surge

While traders' attentions were as usual focused on the latest developments in China last night, around 9pm ET we pointed out that the real action was taking place in Japan, where the 10Y yield had blown out beyond the BOJ's designated range of 0.00%-0.10%...

... and had even crossed into the range above 0.11% where the BOJ traditionally launches its Fixed Rate Operation, also known as Unlimited Buying of JGBs beyond a given rate, something it did most recently on Monday morning (after a 7 month hiatus) when JGB yields also blew out sharply.

Which is why we were wondering when the BOJ would announce the latest "unlimited buying" operation to defend Japanese bonds from a further rout.

And it wasn't just us: so were all bond traders and central bank watchers, and yet the hours passed and still nothing from Kuroda.

Then, finally, just around 1am ET or 4 hours after the rout had started, the BOJ couldn't take it any more and announced the long overdue fixed-rate operation for the second time in 5 days after the 10-year yield rose to its highest level in more than a year.

While the BOJ's latest intervention resulted in a lot of relieved traders as the lack of any intervention almost convinced markets that Kuroda was willing to let the long end JGBs "slide", there was a difference: this BOJ offered to buy 10-year debt at 0.10% vs 0.11% at its previous operations. And also unlike Monday's operation, today the central bank actually did end up buying some 94BN yen worth of 10-year bonds.

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