TOKYO, March 17 Japan's Ministry of Finance is
considering raising the minimum bidding requirement of primary
dealers in government bond auctions to ensure the stability of
the bond market, government sources with knowledge of the matter
said on Friday.
Under the plan, which the ministry is expected to present to
primary dealers next week, the minimum requirement for each
dealer will be raised to 5 percent of the total offer from the
current 4 percent, the sources said.
Because there are 21 such dealers now, the increase will
eliminate the risk that the ministry's debt auction will go
under-subscribed even if no other investors make bidding.
A JGB auction has not been under-subscribed since 2003 and
there are no immediate worries over demand as the Bank of Japan
is buying a massive amount from the market.
But the idea came after the Bank of Mitsubishi-Tokyo UFJ
Bank withdrew its primary dealership last year, a move that
raised some worries about smooth absorption of Japan's massive
public debts into markets especially as bond yields rise
The MOF plans to introduce the new bidding quota in the
middle of this year, the sources said.
If decided, it would be the second time the MOF raised the
minimum requirement after it had notched up to four percent from
three percent in 2015.
In exchange for the added burden for primary dealers, the
MOF is also considering offering a sweetener by raising the
maximum amount of bonds it offers specially to primary dealers
through so-called first non-price competitive auctions.
In this auction, which are held simultaneously with regular
bond auctions, primary dealers can buy government bonds at the
average price of regular price competitive auction, thus without
having to worry about buying bonds at higher price than the
The MOF is considering raising the limit on the amount of
extra issue at this auction to 15-20 percent of the regular
auction, compared to 10 percent now, the sources said.
(Reporting by Takaya Yamaguchi; Writing by Hideyuki Sano;
Editing by Kim Coghill)