10-Year JGB Supply Goes Poorly Relatively

10-year JGB supply goes relatively poorly with the low price failing to meet wider expectations (which stood at 98.17, per the BBG dealer poll).

• The cover ratio of 3.636x at today’s auction worsens compared to the previous auction's ratio of 4.024x. Today’s cover was the lowest observed at a 10-year JGB auction since May. The tail also increased to the worst level since May.
• The higher outright yield, steeper yield curve and relative cheapness of 10-year JGBs compared to futures (7-year maturity) failed to offset investor uncertainty sparked by the BoJ’s decision last Friday to tweak YCC.
• Today’s auction also provided some insight into how the recent YCC developments could impact capital reallocation by local investors from abroad towards the longer end of the JGB curve. In short, it appears local investors will need time to assess the new YCC framework and the BoJ policy outlook before significantly lifting allocations to the JGB market.
• In early Tokyo afternoon trade, the cash 10-year JGB is around 1.0bp cheaper than lunch levels with the yield around 0.611%.
• JGB futures have also gapped lower, sitting at -6 compared to settlement levels versus +15 at lunch.