40-year Auction Goes Well

Today’s supply of 40-year bonds was solidly absorbed, as the high yield came in lower than dealer expectations, which had projected a yield of 1.75% based on the BBG poll.

• Moreover, there was an improvement in the cover ratio, which increased to 2.950x compared to 2.541x during the late-July auction. This is the consecutive increase in the cover ratio after it hit its lowest seen at a 40-year auction since November 2022 at the May auction.
• As flagged in the auction preview, the current auction took place with an outright yield approximately 35bps higher than the July offering.
• Today's 40-year auction was significant as it's the first one following the BOJ's adjustment to the YCC framework on July 27th. It also comes in the wake of the BOJ’s ‘dovish hold’ on Friday.
• After lacklustre demand metrics at the 30-year auction earlier this month, today’s well-absorbed supply suggests outright yields may be starting to provide adequate compensation for uncertainties and that the ongoing trend of local market participants shifting their portfolios from hedged offshore debt to holdings in yen-denominated bonds remains in play.
• The 40-year bond is 1-1.5bp richer in early afternoon trading, reflecting a positive response to the auction outcome. JGB futures are also slightly stronger in post-auction trade.