PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's re-opening JB#364. The MOF last sold 10-Year debt on October 5, the auction drew cover of 2.452x at an average yield of 0.049%, average price of 100.50, high yield of 0.052%, low price of 100.47, with 78.6986% of bids allotted at the high yield.

• Outright 10-Year JGB yields operate around multi-month highs heading into today's supply, sitting around the 11bp mark, with domestic participants clearly focused on issuance requirements surrounding the impending supplementary budget after the Lower House election. While the impending fiscal announcements may limit demand for outright exposure to 10s, the most attractive carry & roll proposition on the curve may provide some support.
• The 5-/10-/20-Year butterfly continues to operate within the range established over recent months, while lifer insurers' preference for longer dated JGBs (as outlined in the recent round of semi-annual interviews) may point to the potential for longer dated flattener strategies to perform (this wouldn't be supportive of demand at today's auction).
• All in all, the recent cheapening and carry & vol. proposition, coupled with JGB's insulation to broader beta when compared to global peers, may support demand today. Still, the previously flagged local fiscal matters and central bank developments abroad may provide some headwinds for the auction.
• Results due at 0335GMT/1235JST.