PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs, re-opening JB#366. The MOF last sold 10-Year debt on April 5, the auction drew cover of 3.611x at an average yield of 0.201%, average price of 99.99, high yield of 0.203%, low price of 99.97, with 80.3585% of bids allotted at the high yield.

• 10-Year JGB yields continue to operate close to the upper end of the BoJ’s permitted -/+0.25% 10-Year JGB yield trading band (~0.245% last). This, coupled with the BoJ’s insistence, via both rhetoric and action, that it will continue to enforce its current YCC settings, should result in a baseline level of demand at auction.
• However, the relative richness of the 10-Year sector on the likes of the 5/10-/20-Year butterfly (although this has retraced from recent extremes) will likely limit demand and could result in sub-par takedown.
• Countering this dynamic, at least to some extent, will be short-covering requirements, which could provide an extra layer to the demand base.
• Results due at 0435BST/1235JST.