JGB Futures Liquidity

Hi all,

I am interested in trading JGB futures, particularly not the current maturity. Basically, I want to buy and hold short positions against the JGB, betting that Japan will eventually have a fiscal crisis that will result in the JGB price tanking. I would be rolling over this bet, so it seems to me that I would be better off paying a reasonable premium to get into the longer maturity futures rather than holding the shortest. The point would be to reduce the probability that I have to pay a lot for rollovers in the early stage of a crisis due to backwardation increasing.

First of all, does that logic make sense?

Secondly, the SGX and TSE list 3 or 4 maturities for JGB, but it looks like none but the current trade on the SGX, because there is no open interest and no volume for the others. I can see through Interactive Brokers the daily closing prices for 3 maturities on the TSE, but I can't see any other info about these. I am wondering if anyone here knows if the non-current maturities are actually traded, what the liquidity is like, and if I try to buy an hold these through IB, will I need to keep an enormous margin to avoid them auto-selling my position due to bad quotes from low liquidity?

Thanks for any help or comments.

you'll have to pay moe or less the same roll whichever way you to do I should have thought... unless you have a view on the rolls just do it in the spot month and roll quarterly... they'll be more liquid during roll week

comment applies to all bond futures, no experience with JGBs specifically but I would be amazed if they're illiquid

oh, also, iirc on one of the exchanges re: JGBs there's daily delivery (which I've only ever seen before in carbon futures) which would explain the open interest, but can't remember details

Your logic makes sense and Arab is right...

JGB futs trade predominantly on the TSE (although they exist on LIFFE and SGX) and, normally, liquidity is only there for the front contract, unless we're close to its maturity date. For example, there's no open interest on the Jun JGB contract at the moment and you can only really trade the Mar one.

So if you want to do this trade, you will have to do the front contract and roll it every time. Don't worry about the roll getting worse when the sh1t finally hits the fan. Whatever money you make from the outright direction wil easily dominate anything the roll will do.

Thanks for the help guys. I guess I will roll the front. The timing does worry me though, requiring a mere 3 month window to go from business as usual to (I hope) full blown crisis. Do you have any feeling for what might happen to backwardation if crisis looked probable?

All other things being equal (i.e. front and back contract CTDs the same, no extreme term structure changes), the roll is likely to be collapse in a Japanese implosion scenario. By that I mean that the front contract will dump a lot more than the back contract. However, take with grain of salt as there's lots of variables and assumptions that go into this prediction.