AUCTION: 20s May See Outright & ASW Interest

The Japanese MOF will today sell Y1.2tn of 20-Year JGB's re-opening JB#174. The MOF last sold 20-Year debt on October 20, the auction drew cover of 3.860x at an average yield of 0.394%, average price of 100.10, high yield of 0.397%, low price of 100.05, with 18.5341% of bids allotted at the high yield.

• 20-Year JGB yields sit towards the richer end of the range witnessed in recent months, at least in outright yield terms, after moving away from their early July cheaps.
• The recent gyrations in broader global interest rates saw demand for 20-Year JGBs hold relatively firm, while the prospects for deeper/adjustments to existing monetary easing at some of the major global central banks and lack of forthcoming fiscal support in the U.S. ultimately kept global long ends in check. This will likely support demand at auction.
• Still, there may be limited demand for long 20s in flattener positions given the potential for further (albeit relatively limited) fiscal stimulus in Japan and lack of any outright bullish catalysts evident at present. It is also worth flagging that 10s carry a greater carry & roll proposition vs. 20s.
• ASWs are a little more attractive than 10s/20s flatteners, in both outright and carry terms, although the BoJ's fresh Special Deposit Facility framework may limit regional bank flows into ASW, if they can meet the criteria for qualifying for the Facility. However, collateral requirements muddy this view a little, and could at least partially offset at least some of any pullback in regional bank flow in the case of a move higher in rates.
• Results due at 0335GMT/1235JST.