PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs, opening JB#368. The MOF last sold 10-Year debt on September 1, the auction drew cover of 4.014x at an average yield of 0.235%, average price of 99.66, high yield of 0.239%, low price of 99.62, with 66.2307% of bids allotted at the high yield.

• 10s continue to operate at/just below the upper limit of the band permitted under the BoJ’s YCC scheme, with foreign investors once again driving the test of the BoJ’s resolve on this front, albeit with less gusto when compared to June’s challenge.
• That means that outright yields levels should prove to be attractive, providing the BoJ maintains its YCC settings, as it has stressed that it will.
• The recent move away from cycle cheaps for core global FI markets could bolster demand.
• Looking at RV, 10s still trade at the richer end of their recent range on the likes of the 5-/10-/15-Year butterfly, although that is a function of the BoJ’s YCC mechanism.
• The more sizable increases to the longer dated buckets in the BoJ’s latest quarterly Rinban plan (vs. the formalisation of the recent Y50bn uptick in 5- to 10-Year purchases as the new standard size) may also limit the appeal at auction.
• Ultimately, the auction strength will be dictated by the market’s trust in the BoJ’s YCC settings, given the lack of RV appeal.
• Results due at 0435BST/1235JST.