10-Year JGB Supply Goes Poorly

10-Year JGB supply goes relatively poorly with the low price failing to meet wider expectations (which stood at 100.38, per the BBG dealer poll), while the cover ratio fell to the lowest level observed at a 10-Year JGB auction since August ’22.

• This auction looks particularly weak when weighed up against the blockbuster demand seen at last month’s 10-Year offering, with a reduction in the short base and questions re: the trajectory for BoJ monetary policy in the coming months seemingly outweighing the allure of new paper and any willingness to set long legs of curve steepener positions via this liquidity event.
• JGB futures gapped lower after the lunch break, with that move extending further as the contract breaks below its Monday/overnight session base, printing at the lowest level observed since mid-March in the process. Wider cash JGB trade sees the major benchmarks running little changed to 2.5bp cheaper on the day post-supply, while payside flows are seen in swaps as the twist steepening morphs into more conventional steepening.