PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.6tn of 10-Year JGBs re-opening JB#365. The MOF last sold 10-Year debt on January 5, the auction drew cover of 3.458x at an average yield of 0.096%, average price of 100.03, high yield of 0.097%, low price of 100.02, with 38.3637% of bids allotted at the high yield.

• •Outright 10-Year JGB yields sit just shy of the fresh multi-year highs registered on Monday, although speculation surrounding BoJ YCC policy tweaks may limit outright demand when it comes to this auction (even with BoJ Governor Kuroda pushing back directly against such speculation in recent weeks). At 0.18% 10-Year JGB yields sit 7bp shy of the 25bp ceiling in play under the BoJ’s current monetary policy settings.
• •The aforementioned BoJ speculation and cheapening dynamic witnessed in broader core FI markets during early ’22 has allowed the 10-Year JGB to cheapen on the 5-/10-/20-Year butterfly structure. That strategy has seen 10s move to the cheapest level witnessed since Q221.
• •Some desks have pointed to the auction as a way to set 7-/10-Year flatteners and long 10-Year ASW positions, given the aforementioned pushback from Kuroda.
• •Results due at 0335GMT/1235JST.