The Bank of Japan's decision to maintain its cap on 10-year yields has chilled speculators who have for months been selling short government bonds, betting that the bank will soon alter or abandon its yield-curve-control policy
this week was, at first glance, a damp squib for excited markets. It maintained its cap on 10-year yields, defying market expectations for change, and modified a funds-supply operation such that it offers more money for longer tenors to banks.
"Currently there is uncertainty and the market will be very volatile. I will not be taking many risks," said Matsukawa. The cost of the short JGB trade, famously dubbed the 'widowmaker' for its penchant to fail, is roughly 6% annualised, making it punitive for short-sellers if the BOJ stays pat for long.
Concerns over liquidity and the ability to buy JGBs in time were the reasons most other short-sellers covered their short positions this week, bankers said.
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