Bloomberg: Japan Repo Rates Hit Most Expensive on Record in Dollar Rush

Rates in Japan’s repurchase market — where bond holders connect with investors looking to borrow them — hit a record Tuesday. The introduction of cheaper, more regular dollar-swap auctions has generated huge demand from U.S. currency-starved dealers who are keeping their JGBs to put them down as collateral.

“Demand for JGBs as collateral and its importance now is heightening.” Souichi Takeyama, a rates strategist at SMBC Nikko Securities in Tokyo, said. “There is little incentive to sell to the BOJ because there are more effective ways to make use of JGBs.”

The repo rate dropped to minus 0.88% on Tuesday. A negative rate means that the buyer of the repo — the investor lending the cash for bonds — ends up paying interest.

The surge in demand comes just as the Bank of Japan steps up JGB purchases to provide liquidity to financial markets grappling with the worsening coronavirus outbreak. Net-net that means less supply available for Japanese banks who have so far tapped more than $150 billion in ultra-cheap dollar funding.

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