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20-Year Supply Digested Smoothly; Cover Weakens

JGBS

The latest round of 20-Year JGB supply was absorbed smoothly enough, with the low price printing comfortably above wider expectations (which stood at 102.400, per the BBG dealer poll), while the price tail narrowed when compared to the previous auction. On the other hand, the cover ratio painted a slightly weaker picture of demand, moderating to 3.28x from the previous auction’s 3.63x, a little below the six-auction average of 3.37x.

  • As highlighted in our preview, the richening observed in 20s away from cycle cheaps as well as its richening on the 10-/20-/30-Year butterfly since June, likely provided headwinds for demand.
  • Still, the auction priced well, likely aided by the continued home bias for Japanese investors, amidst elevated FX-hedging costs and continued market volatility. These factors probably meant that demand from life insurers for super-long JGBs remained evident, in line with their previously outlined investment intentions.
  • 20s have firmed in the wake of the auction, richening by ~1.5bp vs. pre-auction levels.
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The latest round of 20-Year JGB supply was absorbed smoothly enough, with the low price printing comfortably above wider expectations (which stood at 102.400, per the BBG dealer poll), while the price tail narrowed when compared to the previous auction. On the other hand, the cover ratio painted a slightly weaker picture of demand, moderating to 3.28x from the previous auction’s 3.63x, a little below the six-auction average of 3.37x.

  • As highlighted in our preview, the richening observed in 20s away from cycle cheaps as well as its richening on the 10-/20-/30-Year butterfly since June, likely provided headwinds for demand.
  • Still, the auction priced well, likely aided by the continued home bias for Japanese investors, amidst elevated FX-hedging costs and continued market volatility. These factors probably meant that demand from life insurers for super-long JGBs remained evident, in line with their previously outlined investment intentions.
  • 20s have firmed in the wake of the auction, richening by ~1.5bp vs. pre-auction levels.