Bear Steepening On Weak 20-Year JGB Auction

JGB futures are -15 ticks last, while the curve has bear steepened in the wake of a soft 20-Year JGB auction which saw a much lower than expected low price and the lowest cover ratio observed at a 20-Year auction in a decade.

• The auction was hindered by the apparent return of international investors for a renewed challenge of the BoJ’s YCC settings (based on weekly international security flow data from the Japanese MoF), which likely limited broader demand alongside a lack of relative value appeal.
• The major cash JGB benchmarks run 0.5-7.0bp cheaper ahead of the bell.
• Futures recovered from Tokyo lows lodged post-auction after failing to test their overnight base, likely as 10-Year JGB yields continue to hover close to the upper limit of the BoJ’s permitted trading band.
• There are no domestic data releases of note scheduled for Friday.