Poor Digestion of 20-year Supply

20-year supply sees poor digestion as the low-price printed below dealer expectations (which stood at 101.55, per the BBG poll) and the cover ratio at 2.584x decreased versus 3.540x at last month’s auction. It is worth noting that the auction tail also lengthened materially.

• As highlighted in the auction preview, today’s auction followed a 30-year that showed very poor demand metrics as well in December. Notably, the cover ratio at that auction plummeted to the lowest level observed in a 30-year auction since 2015, and the tail registered as the longest on record.
• Not even growing optimism surrounding the BOJ’s upcoming policy outcome or improved sentiment towards longer-dated bonds globally since early November, particularly following yesterday’s dovish FOMC decision could support the bid at today’s auction.
• JGB futures have initially gapped lower after the lunch break, retracing part of the morning’s post-FOMC strength.
• The 20-year JGB has initially cheapened 4bps in post-auction trade.