PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs, re-opening JB#369. The MOF last sold 10-Year debt on 2 February, the auction drew cover of 4.611x at an average yield of 0.485%, average price of 100.14, high yield of 0.495%, low price of 100.04, with 58.5171% of bids allotted at the high yield.

• Yields are testing the upper boundary of the BoJ’s YCC settings, which should underpin demand from those that expect no change in policy at outgoing BoJ Governor Kuroda’s final monetary policy meeting (next week), as well as those looking for a bit of a delay under the Bank’s new leadership when it comes to the next YCC tweak.
• Still, the ongoing uncertainty re: BoJ policy will cap demand to some degree.
• Note that 10s have recently moved to the cheapest level observed since June on the 5-/10-20-Year butterfly, which could foster further demand.
• Swap spread width remains a headwind for demand, although is back from extremes.
• Short covering demand will also factor into the auction.
• All in, expect smooth enough, although not stellar demand.
• Results due at 0335GMT/1235JST.