PREVIEW - 10-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y2.7tn of 10-Year JGBs. The MOF last sold 10-year debt on 5 December 2023, the auction drew cover of 2.904x at an average yield of 0.596%, an average price of 100.03, a high yield of 0.609%, a low price of 99.91, with 30.3621% of bids allotted at the high yield.

• The auction held last month presented poor demand metrics. The low price failed to meet wider expectations, the tail lengthened, and the cover ratio only improved slightly to 2.904x from 2.823x at December’s auction. It is worth noting that December’s cover was the lowest seen at a 10-year auction since 2021.
• It is also worth mentioning that today’s auction comes after the BoJ announced in early January buying of 10-year to 25-year debt that suggested it will purchase less of those bonds in all of January, in line with what it signalled late last year. (See Bloomberg link, ICYMI)
• The current 10-year auction is taking place with an outright yield that is approximately 15bps higher than the early January offering. Nevertheless, the current yield is still more than 20bps below the cycle peak set in early November.
• Relative to the January auction, the 2/10 yield curve is around 10bps steeper.
• It's also notable that the relative affordability of 10-year JGBs compared to futures, as indicated by the spread between the 7- and 10-year JGBs, is currently at its highest point since 2015.
• Today's auction also occurs amidst bullish sentiment towards long-end global bonds, exemplified by the US tsy 10-year yield sitting some 100bps below its cycle peak set in late October.
• Against this backdrop, it will be intriguing to observe whether the lower 10-year yield, will prove sufficient to generate demand at today's auction.
• Results are due at 0335 GMT / 1235 JT.