NOBODY BOUGHT Japan’s ten-year government bond in over-the-counter trading on August 3rd. Such a lull in the world’s second-largest market for sovereign bonds would once have been remarkable. But in fact this was not even the first time activity dried up. Once-frenetic trading desks in Tokyo have fallen silent over the past half-decade.
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Sceptics of the central bank’s enormous quantitative-easing (QE) programme warned this moment would come. With the Bank of Japan (BoJ) hoovering up securities, they argued, benchmark bonds would become scarce, causing price volatility and stopping investors pricing risks properly. Financial institutions would be deprived of the collateral they needed to operate. But, curiously, there is little sign that the drying up of the Japanese market…