A shrinking supply of Japanese government bonds is causing havoc in money markets as the Bank of Japan seeks to buy an increasing amount of debt and dealers refuse to sell.
Rates in Japan’s repurchase market -- where bond holders connect with investors looking to borrow them -- hit a record Tuesday. The introduction of cheaper, more regular dollar-swap auctions has generated huge demand from U.S. currency-starved dealers who are keeping their JGBs to put them down as collateral.
