40-year Auction Goes Poorly

The market's response to the supply of 40-year bonds was disappointing, as the high yield exceeded dealer expectations, which had projected a yield of 1.445% based on the BBG poll.

• Nevertheless, there was an improvement in the cover ratio, which increased to 2.541x compared to 2.377x during the late-May auction. It's worth noting that the cover ratio observed in late May was the lowest seen at a 40-year auction since November 2022.
• As flagged in auction preview, the current auction took place with the outright yield and yield curve at similar levels to the previous one in late May. The subdued demand seen today might therefore be a reflection of uncertainty surrounding policy outcomes at the BoJ's policy meeting scheduled for Friday.
• The 40-year bond is 2bp cheaper in early afternoon trading, reflecting a negative response to the auction outcome. JGB futures are also slightly weaker in post-auction trade.