10Y Supply Smoothly Absorbed, Demand Stronger

The 10-year JGB auction showed solid demand metrics. The low price matched wider expectations (which stood at 98.63, per the BBG dealer poll), the tail shortened, and the cover ratio improved to 3.648x from 2.904x at January’s auction. It is worth noting that the cover ratio has improved for two straight months after December’s cover was the lowest seen at a 10-year auction since 2021.

• As highlighted in the auction preview, today’s 10-year auction took place with an outright yield that was approximately 15bps higher than the early January offering. Moreover, the 2/10 yield curve was around 10bps steeper. It's was also notable that the relative affordability of 10-year JGBs compared to futures, as indicated by the spread between the 7- and 10-year JGBs, was at its highest point since 2015.
• The current bullish sentiment towards long-end global bonds also likely supported the bid at today’s auction.
• In early Tokyo afternoon trade, the cash 10-year JGB is around 2bps richer than lunch levels.
• JGB futures have gapped higher to a Tokyo session high in afternoon dealings, +18 compared to settlement levels.