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Poor Digestion of 30-year Supply, Longest Tail Since Apr-2020

JGBS

30-year supply sees relatively poor digestion as the low price fails to meet dealer expectations (which stood at 99.40, per the BBG poll). The cover ratio at 3.027x also ticked down versus 3.076x at last month’s auction to its lowest level since March. The auction tail was also significantly longer than the past auction, rising to the highest level since Apr-2020.

  • Despite the allure of a new issue, the intention to extend portfolio duration, a continued relative cheapening of the 30-year bond in the 20-/30-/40-year butterfly, and downside surprises in Tokyo inflation metrics, these factors were unable to facilitate a successful takedown of this month's 30-year auction.
  • It seems that the potential negative factors highlighted in the preview, such as a lower outright yield and a slightly flatter yield curve compared to the previous auction, exerted influence over today's auction results.
  • JGBs futures have initially gapped lower after the lunch break, reaching a new Tokyo session low of 148.58, -14 compared to settlement levels.
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