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 3 September 2024, the auction drew cover of 3.529x at an average yield of 0.871%, an average price of 100.26, a high yield of 0.873%, a low price of 100.24, with 38.5929% of bids allotted at the high yield.

• Last month’s auction was well absorbed, with the low price exceeding expectations, the cover ratio rising to 3.529x from 3.17x, and the tail shortening.
• The current 10-year auction is offering an outright yield 10-15bps higher than last month’s, though still about 10bps below the July cyclical high.
• The 2s/10s yield curve is now approximately 5bps steeper than last month and 5-10bps steeper than its recent low, the flattest point since mid-2023.
• The relative affordability of 10-year JGBs versus futures, measured by the 7- to 10-year spread, remains similar to last month, currently near the middle of its range over the past year.
• However, today’s auction occurs amid weak sentiment toward global long-end bonds. Yesterday’s post-U.S. Election sell-off in U.S. tsys has pressured longer-dated yields across markets, with the U.S. 10-year yield now 80-85bps above its September low.
• Against this backdrop, it will be interesting to see if the current 10-year yield attracts sufficient demand at today’s auction.
• Results are due at 0335 BST / 1235 JT.