JGBi breakevens rebound as investor liquidation subsides

The Japanese inflation-linked bond (JGBi) market has rebounded from its lows of last year as fewer investors are liquidating their positions, while some domestic players are starting to buy the heavily discounted bonds.

JGBi prices were thrown into distress after the collapse of Lehman Brothers last year. Foreign investors such as hedge funds, the biggest buyers of the inflation-linked bonds, were hit by volatile markets and a spike in investor redemptions, and were forced to aggressively deleverage and unwind large volumes of JGBi trades. But, because the JGBi market lacks domestic demand, the resulting sell-off floundered amid insufficient liquidity to unwind the positions.

The market dislocation prompted the