10Y Supply Smoothly Absorbed, Less Demand

The 10-year JGB auction was smoothly absorbed, with the low price matching wider expectations (which stood at 98.88, per the BBG dealer poll) and the tail shortening. However, the cover ratio declined to 3.239x from 3.648x at February’s auction. It is worth noting that today’s cover ratio remains higher than December’s, which 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 the same as the early February offering.
• It 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 around its highest point since 2015.
• The 2/10 yield curve was however around 5bps flatter relative to the February auction level and only slightly steeper than the December low, which was the flattest since July 2023.
• Growing expectations that the BoJ could remove NIRP as early as this month (18-19 March) possibly weighed on the bid at today’s auction.
• In early Tokyo afternoon trade, the cash 10-year JGB is around 1-1.5bps richer than lunch levels.
• JGB futures have gapped higher to a Tokyo session high in afternoon dealings, +2 compared to settlement levels.