The Bank of Japan has sold some of its holdings of futures-linked 10-year government bonds to improve the trading liquidity of these securities, which are often used as hedging tools against market volatility.
The BOJ owned ¥8.03 trillion ($53.5 billion) of the bonds due in March 2032 as of Nov. 29, down from ¥8.23 trillion on Nov. 20, data released late Tuesday showed. It is important for the market that there is liquidity in these bonds because they are the cheapest-to-deliver securities underlying the March contract for 10-year bond futures.
The cheapest-to-deliver bonds are those that minimize the seller’s cost when converted to the futures contract price.
