Cheaper At Lunch Ahead Of 40Y Supply Results

At the Tokyo lunch break, JGB futures are weaker but off session lows, -9 compared to settlement levels.

• Outside of the previously outlined Preliminary Jibun Bank PMIs, there hasn't been much in the way of domestic drivers to flag.
• The cash JGB curve has slightly bear-flattened, with yields 1-2bps higher. The benchmark 10-year yield is 1.0bp higher at 1.075% versus the cycle high of 1.108%.
• The 40-year yield is 1.1bp higher at 2.439% ahead of today’s supply results.
• The late May auction of 40-year JGBs encountered a tepid reception, with the actual high yield overshooting dealer expectations.
• However, today’s supply follows solid demand metrics at July's 20- and 30-year JGB auctions. The 20-year supply experienced an increase in the cover ratio and a shorter auction tail, whereas the 30-year auction beat dealer expectations but with a lower cover ratio.
• "Demand can be expected from life insurers for the replacement of low-coupon bonds with high-coupon debt, Miki Den, a senior rates strategist at SMBC Nikko Securities, writes in a note." (per BBG)
• Swap rates are little changed out to the 30-year, and 3bps higher beyond. Swap spreads are mixed.