20-year Supply Sees Lower Demand

During today's 20-year auction, demand was weaker, as the low price fell short of meeting dealer expectations (which were anticipated to be at 102.45, according to the BBG poll), and the cover ratio decreased to 3.03x compared to 3.688x at the previous month's auction. However, it is worth highlighting that May's 20-year supply witnessed the highest cover ratio recorded in a 20-year auction since May 2022. Additionally, the auction tail experienced a significant increase compared to the May auction.

• The demand for today's 20-year auction seems to have been impacted by the level of the outright 20-year yield and the richness of the 20-year on a 10/20/30-year butterfly, as we mentioned in our preview.
• This outcome contradicts the robust demand witnessed at the 30-year auction earlier in June and goes against the trend observed among Japanese investors, specifically domestic life insurers and pension funds, who have been allocating capital to the longer end of the JGB curve due to elevated FX-hedging costs in the new fiscal year.
• JGBs futures are little changed in early trade in the Tokyo afternoon session.
• The 20-year JGB yield is slightly cheaper post-auction trade, sitting flat on the day at 0.955%.