Good Digestion of 20-year Supply

20-year supply sees good digestion as the low price beats below dealer expectations (which stood at 94.60, per the BBG poll). The cover ratio at 3.942x also increased sharply versus 2.795x at last month’s auction. Indeed, the cover ratio was the highest observed at a 20-year auction since mid-2020. The auction tail was also significantly shorter than the previous auction, which wasn't particularly difficult given it was the longest since at least 2018.

• The near-highest outright yield since January, the steepest 10/20 curve since March and the cheapness of the 20s relative to the 10/20/30-year butterfly were able to facilitate a successful takedown of this month's 20-year auction.
• Today’s auction result follows on the heels of a successful 5-year auction earlier in the week. Moreover, today’s auction marks a turnaround from recent longer-dated JGB auction outcomes that suggested that local investors were inclined to seek higher yields or prefer more time to assess the new YCC framework and the BoJ's policy outlook before significantly increasing their allocations to longer-dated JGBs.
• JGB futures have initially gapped higher after the lunch break, reaching a new Tokyo session high of 145.75. At 145.69, JBZ3 is +13 compared to settlement levels.
• The 20-year JGB initially richened 2-3bp in post-auction trade.