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Tokyo Stock Exchange Bond Trades and Japanese Government Bonds

It is a common belief that Tokyo stock exchange bond trades are similar to those in other countries. In fact, despite there being 9 exchanges in Japan, 98% of all Japanese bond trades occur over the counter (OTC). The TSE is generally only involved as the settlement agency.

Japanese government bonds are settled on a T+3 basis and are quoted in 1/100 Yen. They pay a semi annual coupon and the accrual convention is paid on an actual for 365 day basis.

These Japanese government bonds are issued in one of two ways:

(i) syndication, which involves a negotiation with approx 40 representatives of a 200 strong syndicate representing financial firms. The negotiations relate to coupon rate and the quantity of bonds to be issued. These negotiations are carried out several weeks before issue date and the eventual price is decided by bidding.

(ii) or, public auction. Bidders submit bids to the Bank of Japan and the Ministry of Finance will decide the quantities to be issued.

This all means Tokyo stock exchange bond trades are actually quite rare.

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