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 1 February 2024, the auction drew cover of 3.648x at an average yield of 0.741%, an average price of 98.70, a high yield of 0.748%, a low price of 98.63, with 5.1592% of bids allotted at the high yield.

• The auction held last month showed solid demand metrics. The low price matched wider expectations, the tail shortened, and the cover ratio improved to 3.648x from 2.904x at January’s auction. It is worth noting that the cover ratio has now improved for two straight months after December’s cover was the lowest seen at a 10-year auction since 2021.
• The current 10-year auction is taking place with an outright yield that is approximately the same as the early February offering. Nevertheless, the current yield is still more than 20bps below the cycle peak set in early November.
• The 2/10 yield curve is around 5bps flatter relative to the February auction level and only slightly steeper than the December low, which was the flattest since July 2023.
• 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 around its highest point since 2015.
• Today's auction also occurs with bullish sentiment towards long-end global bonds under pressure from a paring of global policy easing expectations. Moreover, today's offering occurs amidst growing expectations that the BoJ could remove NIRP as early as this month (18-19 March).
• Against this backdrop, it will be intriguing to observe whether the lower 10-year yield, will once again prove sufficient to generate demand at today's auction.
• Results are due at 0335 GMT / 1235 JT.