Bank of Japan: (research paper) A network analysis of the JGB repo market



December 21, 2021

  • HORIKAWA Takumi* 1

  • MATSUI Yujiro* 2

  • GEMMA Yasufumi* 3

Summary

In this article, we attempt to understand the characteristics of the Japanese Government Bond (JGB) repo market by applying network analysis methods to highly granular data on JGB repo transactions. In particular, we use a “network centrality” measure that quantitatively identifies financial institutions that play an important role in the transactional network and a “community detection” method that identifies groups of financial institutions that have strong transactional relationships. with each other. From the results, it was observed that some very important financial institutions function as intermediaries for transactions and that continuous transaction relationships within groups are built around them. These features can aid in the efficient matching of borrowing and cash lending needs and the successful execution of jackpot trades. We also performed an analysis of the behavior of the network structure of the market stress JGB repo market using data from March 2020, when the repo rate fluctuated significantly due to the spread of the pandemic. of COVID-19. The results of the analysis in this paper indicate the importance of continuously monitoring the functioning of the JGB repo market, and also provide clues to maintain and improve the functioning and robustness of the market.

JEL Ranking
D85, G14, G20, L14

Keywords
Network analysis; Financial markets; repo transactions; Ranking; Decomposition in bow tie; Community detection

  1. * 1Financial Markets Department (currently, Personnel and Corporate Affairs Department), Bank of Japan
    Email: [email protected]
  2. * 2Financial Markets Department (currently, Research and Statistics Department), Bank of Japan
    Email: [email protected]
  3. * 3Financial Markets Department (currently, International Department), Bank of Japan
    Email: yasufumi.gen[email protected]

Note

The papers in the Bank of Japan Working Paper Series are released to stimulate discussion and comment. The opinions expressed are those of the authors and do not necessarily reflect those of the Bank. If you have any comments or questions on the Working Paper Series, please contact each author. All rights reserved. Reprinting or reproduction of this document without permission is prohibited.

Warning

Bank of Japan published this content on December 21, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on December 21, 2021 07:09:00 AM UTC.


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