PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs, re-opening JB#368. The MOF last sold 10-Year debt on October 4, the auction drew cover of 5.552x at an average yield of 0.248%, average price of 99.53, high yield of 0.250%, low price of 99.51, with 14.1495% of bids allotted at the high yield.

• 10-Year JGB yields continue to operate around the upper boundary of the BoJ’s permitted -/+0.25% range.
• While outright yields levels will provide some enticement, providing the BoJ’s YCC mechanism is successfully defended, the steepness of the domestic curve and general level of richness of 10s on the curve may limit demand.
• Conversely, some desks have outlined short covering needs as a potential supportive factor, with the BoJ’s aggressive purchases in the sector perhaps a recipe for a baseline level of demand at today’s auction.
• These factors should result in smooth enough passage when it comes to today’s supply, although the relative value headwinds may ultimately cap demand.
• Results due at 0335GMT/1235JST.