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40Y Auction Goes Poorly

JGBS AUCTION

The issuance of 40-year bonds today encountered a tepid reception, with the actual high yield surpassing dealer expectations. The anticipated yield, as per the BBG poll, was projected at 1.92% versus the realised yield of 1.925%.

  • Adding to the subdued response, the cover ratio witnessed a decline, dropping to 2.148x from 2.208x observed in the late-November auction. This outcome marks consecutive declines in cover. The cover ratio had steadily increased from May to September. Notably, today's ratio represents the lowest level at a 40-year auction since March 2011.
  • As highlighted in the auction preview, today's auction followed mixed demand metrics at the 20- and 30-year JGB auctions held in January. While both auctions experienced an uptick in their cover ratios, the low prices achieved fell short of dealer expectations.
  • The 40-year bond is around 2bps cheaper in early afternoon trading, reflecting a negative response to the auction outcome. JGB futures are also weaker in post-auction trade.
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