Japan's Pay-to-Lend Craze Deepens as Repo Rate Falls to Record
by Kevin Buckland Masaki Kondo Shigeki Nozawa
March 10, 2016 — 4:36 AM EST
Demand for Japanese government debt is so strong since the start of the central bank’s negative interest rate policy that it’s turned the market for repurchase agreements on its head.
Dealers who in normal circumstances would pay to borrow overnight cash through repurchase agreements where they offer short-term bills as surety of repayment, are instead willing to pay to get access to the collateral. Demand for Japanese T-bills is so strong it pushed the repo rate for transactions starting the next business day to minus 0.086 percent on Thursday, a record low in data from the Japan Securities Dealers Association stretching back to October 2007.
It’s another instance of how investors are paying to lend money in the world’s second-largest sovereign-bond market. The government got paid to borrow for a decade for the first time at an auction on March 1, as negative rates added to pressure on yields from the Bank of Japan’s quantitative easing program, which has undermined liquidity in the market. The 10-year note yield dropped to a record minus 0.1 percent this week.
“Financial institutions that offer bonds in exchange for funds have grown more reluctant to borrow as the BOJ’s frequent purchase operations decrease the amount of debt available,” said Kenji Sato, a manager at the planning and research department of Central Tanshi Co., a Tokyo-based money-market dealer and broker. “Meanwhile, financial institutions with excess funds want to lend them out to avoid the application of the BOJ’s negative interest rate.”
Three-month T-bills yielded minus 0.085 percent on Wednesday, when they last traded, according to Japan Bond Trading Co. data. Six-month notes offered minus 0.2 percent on Wednesday, also the last day they changed hands, the data show.
http://www.bloomberg.com/news/articles/2016-03-10/japan-s-pay-to-lend-craze-deepens-as-repo-rate-falls-to-record
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