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 August 3, the auction drew cover of 3.333x at an average yield of 0.009%, average price of 100.89, high yield of 0.012%, low price of 100.86, with 31.6719% of bids allotted at the high yield.

• Given the proximity of outright yields to the perceived yield floor of 0% (at least under the current market structure/economic backdrop), most desks note there is little outright value in 10s as we head into supply.
• Desks have also pointed to a lightening up of positions at dealers, which would usually boost demand in a more attractive yield environment.
• Several desks like short belly positions in the 5-/7-/10-Year JGB butterfly i.e. longs in 5s and 10s vs. shorts in 7s, with the attractiveness of that position boosted by the carry & roll profile of 10s. As a reminder 10s offer the most attractive carry & roll profile on the curve, while the 5-/7-Year yield spread is particularly flat at present.
• Results due at 0435BST/1235JST.