Bull Flattening After Solid 20Y Auction

JGB futures are sharply higher and just off Tokyo session highs, +47 compared to settlement levels, after today’s 20-year supply saw solid demand metrics. The low-price beat dealer expectations and the cover ratio increased. The tail also declined materially.

• With the domestic data calendar empty today, today’s supply was the key domestic driver. That said, the local bid was also supported by an extension of yesterday’s rally in longer-dated US tsys in today’s Asia-Pac session. Cash US tsys are flat to 4bps richer, with the curve flatter.
• The cash JGB curve twist-flattens, with yields 0.5bp higher to 6.6bps lower. The benchmark 10-year yield is 5.1bps lower at 0.700% versus the cycle high of 0.97% set in late October.
• The 20-year yield is 6.0bps lower at 1.409%, outperforming on the curve in post-auction dealings. As highlighted in the auction preview, improved sentiment towards longer-dated bonds globally in November, especially following positive inflation data, had the potential to offset the fact that the outright yield on offer today was approximately 10bps lower than the level seen at October auction and around 30bps lower than the cycle high set late in October.
• The swaps curve has bull-flattened, with swap spreads mixed.
• Tomorrow, the local calendar is empty, apart from BOJ Rinban operations covering 1-10-year and 25-year+ JGBs.