PREVIEW - 10-Year JGB Auction Due

The Japanese Ministry of Finance (MoF) will today sell Y2.6tn of 10-Year JGBs. The MoF last sold 10-year debt on 2 July 2024, the auction drew cover of 3.277x at an average yield of 1.091%, an average price of 100.08, a high yield of 1.093%, a low price of 100.06, with 79.8903% of bids allotted at the high yield.

• The auction held last month was adequately absorbed, with the tail remaining short. However, the cover ratio declined to 3.277x from 3.662x in June’s auction.
• The current 10-year auction is taking place with an outright yield around 25bps lower than the July auction, following a significant decline over the past week due to global recessionary concerns.
• However, the 2/10 yield curve is approximately 15bps flatter than it was during the July auction after the recent risk-induced flattening. Notably, it is around 10bps steeper than yesterday’s closing level.
• It is also noteworthy 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 less attractive than it was in July, which saw its highest point since 2013.
• Today’s auction also occurs with sentiment towards global long-end bonds at the most favourable level this year.
• In this context, it will be intriguing to observe whether the current 10-year yield will generate sufficient demand at today’s auction.
• Results are due at 0435 BST / 1235 JT.