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The Japanese government bond market has recently shown some unusual signals.
First, let's talk about futures positions. The open interest for the 10-year JGB contract has now surged to 188,000 contracts, and to know that six months ago this figure was only about 123,000 contracts. In just a few months, it has skyrocketed by 65,000 contracts, a growth rate that is quite rare in historical data.
The yield over there is even more exaggerated. The yield on the 10-year government bond has now soared to 1.81%, an increase of 34 basis points from the previous low. A look back at historical records shows that the last time this level was seen dates back to the financial tsunami in 2008.
Futures prices are also dropping, with the latest quote at 135, a decline of 2.6%. This trend basically indicates one thing: the market no longer believes that the Bank of Japan can continue to maintain its ultra-low interest rate policy; funds are voting with their feet.