The longer end of the JGB curve struggles as the latest 15.5- to 39-Year liquidity enhancement auction sees a very wide tail (albeit with a more favourable average yield spread when compared to the previous auction), while the cover ratio remains little changed around the 2.00x level. Futures are off of post-auction reaction lows, but still sit comfortably below late morning levels, +8. Market vol. and a relative lack of BoJ control over the area of the curve covered by the liquidity enhancement auction, and the fact that liquidity enhancement auctions cover the less liquid, off-the run JGBs, likely limited bidders when it came to the overall aggression shown at today’s auction, resulting in the wide tail. The curve has twisted steeper on the day post-auction, pivoting around 10s.
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