The bond market functioning DI improved to minus 12 in August, reaching its highest level in 11 years. While long-term interest rates rose to nearly 3%, the market was reported to be showing signs of a recovery in trading activity.
The bond market functioning DI stood at minus 12 in August, improving to its highest level in 11 years, according to information reported in the context of empirical research published by the BOJ. Related indicators, including lower trading volumes and widening bid-ask spreads, have also drawn attention.
Trading volumes have tended to decline when the BOJ's share of government bond holdings increases, and this has been cited as potentially affecting the formation of long-term interest rates. Across the market as a whole, market participants are beginning to regain their presence in price formation, while developments in long-term interest rates remain a focus of attention.
Long-term interest rates were seen rising to nearly 3%, prompting discussion of the level after accounting for the BOJ's suppressive effect through its government bond holdings. While some expect the improvement in market functioning to continue, attention is also being drawn to the impact of rising interest rates on funding costs for the private sector and the government.