JGB market functioning DI edges up to minus 12 in August
Secondary Japanese government bond market functioning improved to minus 12 percentage points in August, according to the Bank of Japan's quarterly survey. Meanwhile, institutional respondents projected 10-year sovereign yields to reach 3.01 percent by March 2028.
Liquidity metrics remain subdued
The survey of 77 financial institutions, conducted from August 3 to August 7, 2026, revealed mixed conditions across secondary trading.
While the headline diffusion index for bond market functioning improved 4 percentage points to minus 12, key liquidity metrics deteriorated further.
The DI for order quantity and board thickness dropped to minus 33 points from minus 26 in May, with only 1 percent of participants reporting large order sizes.
Bid-ask spreads widened slightly, with the corresponding DI falling to minus 25 points.
Dealing frequency DI declined to minus 6 points from minus 2 points, while the lot size DI fell to minus 16 points.
Price and lot execution feasibility remained positive at plus 16 and plus 19 points.
Yield curve projections steepen past three percent
Survey respondents projected higher interest rates across all tenors.
The average projection for newly issued 10-year JGB yields stands at 2.82 percent for end-September 2026, climbing to 2.95 percent by March 2027 and reaching 3.01 percent by March 2028.
In the 10-year probability distribution for March 2028, 52.6 percent of respondents placed yields between 2.76 percent and 3.25 percent.
Two-year yields are projected to rise from 1.58 percent to 1.96 percent by March 2029, while 30-year yields hover around 4.03 percent.
Healing on paper, fragile in practice
The slight uptick in the headline index masks persistent structural fragility in secondary trading.
Deteriorating order thickness and widening spreads prove that private liquidity has not yet stepped in to replace central bank presence.
For investors, navigating higher yields will remain fraught with execution hurdles.
Source: Bond Market Survey (August 2026)
IN: