PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs opening JB#367. The MOF last sold 10-Year debt on June 2, the auction drew cover of 4.860x at an average yield of 0.239%, average price of 99.62, high yield of 0.241%, low price of 99.60, with 7.2951% of bids allotted at the high yield.

• There hasn’t been anything in the way of Tokyo morning concession ahead of today’s supply, which when coupled with the modest cheapening observed across the remainder of the curve suggests that participants expect the auction to go well, aided by the BoJ’s continued defence of its existing YCC parameters.
• Outright yields operate a little away from cycle cheaps, 2.5bp shy of the upper end of the Bank’s permitted -/+0.25% trading range. The continued presence of the BoJ in the market may entice prospective bidders to snap up 10s when they can, which would further support takedown.
• The offshore investor base’s short cover needs remain elevated which could provide a further layer of support at today’s auction.
• However, a lack of relative value appeal and micro curve distortions (which may impact carry and roll in the 10-Year sector) will likely prevent the auction from being as strong as it otherwise would be.
• Results due at 0435BST/1235JST.