PREVIEW: 10-Year JGB Auction Preview

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's opening JB#363. The MOF last sold 10-Year debt on June 3, the auction drew cover of 2.942x at an average yield of 0.078%, average price of 100.21, high yield of 0.084%, low price of 100.15, with 29.5378% of bids allotted at the high yield.

• Current outright 10-Year JGB yields hover around the 5bp mark after printing as low as 2.5bp earlier this month, which may limit demand for the auction in outright terms, especially given the relatively wide tail witnessed at June's 10-Year auction (which saw higher yield levels than those prevailing in the market at present).
• Still, the allure of fresh paper and relative attractiveness in carry and roll terms vs. the belly (although 20s are slightly more attractive on that particular front) should provide an underlying level of demand, even given the recent run of outperformance of 10s vs. 20s.
• There is a lack of outright relative value in terms of the 5-/10-/20-Year butterfly, with 10s richening from YtD cheaps on that particular strategy since hitting YtD wides in early April, back to the middle of the YtD range at typing. There has been some steepening vs. both 2s and 5s ahead of today's auction, but the relevant spreads are nowhere near YtD steeps.
• Results due at 0435BST/1235JST.