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 100.69, per the BBG dealer poll) as the relative cheapness of 10-year JGB versus futures, proxied by the spread between the 7- and 10-year JGBs, fails to entice demand.

• Growing inflationary pressure in Japan suggesting a near-term tweak to YCC is still on the table over the coming months, looks to have capped demand. To that end, Governor Ueda’s comments in Parliament today re: encouraging trends in inflation and a willingness to end YCC once the 2% inflation target is reached in a stable and sustainable manner are likely to have weighed on the auction result.
• Cover ratio of 3.6x (versus 3.774x at the previous auction) fell to the lowest level observed at a 10-year JGB auction since August ’22.
• JGBs futures initially gapped lower after the lunch break, extending the trend cheapening seen in morning Tokyo trade.
• Cash JGBs are cheaper in early afternoon trade led by the 10-year with its yield at 0.430%, around 1.2bp higher on the day.