Morning Strength Pared After A Poor 40Y Auction

JGB futures are only slightly richer, +9 compared to the settlement levels, after paring the morning’s gains following a poor 40-year auction.

• The issuance of 40-year bonds today encountered a tepid reception, with the actual high yield surpassing dealer expectations. The cover ratio witnessed a decline, dropping to the lowest level at a 40-year auction since March 2022. As the first 40-year supply following the BOJ’s shift to a 1% YCC reference rate, today’s result holds significance particularly given it was in stark contrast to the robust demand metrics witnessed at the 20- and 30-year JGB auctions in November.
• There hasn’t been much else in the way of domestic drivers to flag.
• Cash US tsys are 1-2bps cheaper in today's Asia-Pac session.
• The cash JGB curve is mixed with the belly outperforming. Yields are 1.8bps lower (5-year) to 2.0bps higher (40-year). The benchmark 10-year yield is 1.3bp lower at 0.765% versus the cycle high of 0.97% set in late October and the BOJ's 1% YCC reference rate. The 40-year JGB is around 3bp cheaper in post-auction dealings.
• The swaps curve has twist-steepened, pivoting at the 4s, with rates 0.8bp lower to 1.4bps higher. Swap spreads are mixed.
• Tomorrow, the local calendar is empty, apart from BOJ Rinban operations covering 3- to 25-year JGBs.