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Japan MOF considers raising JGB primary dealers' bidding requirements - sources
March 17, 2017 / 4:02 AM / 9 months ago

Japan MOF considers raising JGB primary dealers' bidding requirements - sources

TOKYO, March 17 (Reuters) - 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 globally.

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 average.

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)

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