Lacklustre 10-Year Supply; Cover Slips Below Six-Auction Average

The latest round of 10-Year JGB supply saw a relatively weak round of demand, with the cover ratio declining to 3.02x from the 5.05x seen at the previous auction, falling below the six-auction average at 4.29x. The price tail widened a little as well, while the low price printed below wider expectations (100.25 vs. the 100.28 seen in the BBG dealer poll).

• The lacklustre result comes after the BoJ’s recent defence of its YCC parameters and firm insistence on holding its current policy settings as they are. The previously-flagged lack of relative value, coupled with the potential for participants being cognisant of the degree of richening away from the 0.25% yield ceiling that the BoJ permits, likely resulted in soft demand.
• 10-Year JGBs were already on the defensive after the lunch break as they caught up with wider core FI market moves, and have softened further post-auction. JGB futures tagged fresh Tokyo session lows post-supply, but have stabilised off worst levels.