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 February 1, the auction drew cover of 3.269x at an average yield of 0.175%, average price of 99.27, high yield of 0.176%, low price of 99.26, with 97.0987% of bids allotted at the high yield.

• The BoJ’s effective backstopping of 10-Year JGB yields (after February’s pre-emptive enforcement of the upper end of the Bank’s permitted 10-Year JGB trading band) may embolden those looking to implement long positions at today’s auction.
• The BoJ’s enforcement leaves 10s looking a little rich on the likes of the 5/10-/20-Year JGB butterfly structure, although outright yields should provide some counter to relative richness.
• Those that are wary of the spill over surrounding the potential for a fresh move higher in offshore interest rates, but still wanting exposure to the carry and rolldown that 10s provide (the most attractive C&R proposition on the JGB curve at present) may use the auction to establish longs vs. JGB futures, given the BoJ’s aforementioned willingness to defend the top end of its permitted 10-Year JGB yield trading band.
• Results due at 0335GMT/1235JST.