PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's re-opening JB#363. The MOF last sold 10-Year debt on July 1, the auction drew cover of 3.541x at an average yield of 0.058%, average price of 100.41, high yield of 0.059%, low price of 100.40, with 86.3638% of bids allotted at the high yield.

• 10-Year JGBs hover just above the 0% level which may limit outright demand given perceptions that 10s will struggle to breach that psychological marker, at least under the current market regime. Still, 10s provide the most attractive carry & roll proposition on the curve.
• The 2-/10-Year yield spread hovers around the flattest levels witnessed since the COVID-related vol. in early '20. The 10-/30-Year yield spread has moved away from recent steeps, but may still offer some interest for those looking to initiate flatteners i.e. if they believe the worry surrounding long end issuance in any supplementary budget that may be announced later this year is overblown.
• The 5-/10-/20-Year butterfly holds comfortably within the confines of the range witnessed over the last couple of months, and is not too far from the middle of the range observed since April '20. Some have pointed to a long wing position in the 5-/7-/10-Year butterfly as a way to benefit from the previously outlined carry and rolldown that the sector provides, with the belly of that particular structure currently hovering just off multi-month richest levels.
• 10-Year swap spreads also operate around the mid-point of the main range witnessed since April '20.
• Results due at 0435BST/1235JST.