20-year Supply Sees Stronger Demand

During today's 20-year auction, demand was stronger, as the low-price beat dealer expectations (which were anticipated to be at 100.30, according to the BBG poll), and the cover ratio increased to 3.382x compared to 3.025x at the previous month's auction. Additionally, the auction tail experienced a significant shortening compared to the June auction.

• As mentioned in our preview, today's auction likely benefited from factors such as a higher outright yield, a steeper 10/20 yield curve, and the 20-year bond becoming relatively cheaper in relation to the 10/20/30-year butterfly. The allure of a new bond issue might have also played a role, although it did not appear to positively impact the 30-year auction earlier this month.
• This outcome contrasts with the lacklustre demand observed during the 30-year auction in July. It further supports the notion that Japanese investors, particularly domestic life insurers and pension funds, continue to allocate capital to the longer end of the JGB curve due to higher costs associated with FX hedging in the new fiscal year.
• Today's bid remained resilient despite the growing cautious sentiment surrounding the potential adjustment of the BoJ yield-curve control policy at the end of July.
• JGBs futures are slightly stronger in early trade in the Tokyo afternoon session.
• The 20-year JGB yield is 2.5bp lower post-auction trade, sitting 2.9bp lower on the day at 1.064%.