In Japan, the central bank's efforts to boost the economy through extraordinary monetary stimulus are having an unintended consequence: Few want to trade the government's bonds.
The 10-year Japanese government bond didn't even trade on March 13, according to broker-dealer Japan Bond Trading. Other government bonds also showed no trading activity on specific days last month, and the 2-year bond did not trade on Tuesday and Wednesday, the data showed.
Like many major central banks, the Bank of Japan has been buying the country's bonds in order to stimulate the economy. But the bank has taken more extreme measures, such as ramping up purchases to more than 40 percent of the market overall and saying it would control the yield curve by keeping the 10-year government bond yield around 0 percent.
"The yield curve control policy puts a fix on the price," said Doug Peebles, chief investment officer, AB Fixed Income. "They own 80 percent of the [10-year government bond] market, so what's the point of trading?"
As a result, traders are turning to bond futures, where having more buyers and sellers makes entering and exiting positions easier. The futures market is often used for trading in oil, gold and agriculture products. Using the derivative products allows traders to bet on where prices will go without the hassle of having to buy an item itself.
Open interest, a measure of trading volume in futures, for 10-year Japanese government bond futures rose 46 percent in March from a year ago, according to data released last week by the Japan Exchange Group. Year-over-year open interest in February and January also rose, by nearly 23 percent and 19 percent, respectively.
"What the key thing is to realize is the futures market has pretty much supplemented the cash market, and that's where the trading activity is," said Jerry Lucas, senior strategist at UBS Wealth Management. "With the futures market it's the easiest way to express a view on where you think rates are going to go, especially in a low volatility environment."
Lucas expects the central bank could soon increase its holdings to half of the market.
Monetary policy is likely to stay the same for the near future. The Bank of Japan eventually needs to consider how to wind down its massive stimulus program, but any change would be gradual and it's currently "inappropriate" to tighten policy, governor Haruhiko Kuroda said in his first news conference after his formal reappointment to another five-year term.
There are "virtually no cash instruments traded in certain parts of the JGB curve," Ajay Rajadhyaksha, head of macro research, Barclays, said in late March. "We don't see suddenly reverting back until there is substantial policy change on the monetary policy side."
"The lack of vol will remain for the foreseeable future," he said.
One possible consequence for international markets is lower yields globally.
"Japanese investors, because they have a hard time getting ahold of those bonds, they're increasingly looking for alternatives," said Brian Nick, chief investment strategist at Nuveen.
That likely includes German bunds and U.S. Treasurys, some analysts said. And the more buying demand there is, the more the yields fall.
Japanese investors were net buyers of U.S. Treasurys in January for the first time in six months, according to the latest U.S. Treasury data.