The behaviour of bidders in quantitative-easing auctions of sovereign bonds in Japan: Determinants of the popularity of the 9 to 10-year maturity segment

• Published in: The Quarterly review of economics and finance Vol. 72; pp. 206 - 214
• Main Author: Inaba, Kei-Ichiro
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.05.2019
• Subjects: Auction; Bank of Japan; Japanese government bonds; Long-term interest rates; Quantitative easing; Japanese government bonds; D44; Auction; Quantitative easing; Bank of Japan; Long-term interest rates; G13; G12
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2018.12.008

•The Bank of Japan’s government-bond-purchasing auctions are analysed.•A focus is placed upon the popularity of one of the auctioned bond-maturity segments.•The popularity is found to have had five determinants.•The popularity is found to have co-integrated with the five determinants.•They related to bidders’ external environment rather than internal risk-profile. This article provides Japanese evidence on how bidders behaved in multiple-object, multiple-unit, discriminatory-price auctions. It does so by analysing the popularity of the 9 to 10-year maturity segment in the Bank of Japan’s auction purchases of government bonds with remaining maturities of 5–10 years over the period 2013–2015 in its Quantitative Easing policy. The popularity had five determinants: (i) a morning-market factor, the relative interest-rate changes in the morning for the 10-year maturity length compared to 5 to 9-year maturity lengths, (ii) a volatility factor, the relative volatility of 10-year interest rates compared to the other maturity lengths, (iii) a yield-curve factor, the relative value of 10-year interest rates compared to 7-year ones, (iv) a market-liquidity factor, the relative liquidity level for current 10-year government bonds compared to those with 7-year remaining maturity, and (v) a scarcity factor, the size of the auctions relative to the amount of marketable government bonds in the 9 to 10-year maturity segment. The popularity also co-integrated with the five factors, amongst which the yield-curve factor was the most powerful in explaining the popularity’s long-term equilibria. It took three auctions for the popularity to reach a new equilibrium, after diverting by five percentage points from its long-term equilibrium. The morning-market factor was the greatest source of unexpected changes in the popularity.