PREVIEW: 10-Year JGB Supply Due

The Japanese MOF will today sell Y2.7tn of 10-Year JGBs, opening JB#370. The MOF last sold 10-Year debt on 2 March, the auction drew cover of 7.550x at an average yield of 0.500%, average price of 100.00, high yield of 0.500%, low price of 100.00, with 30.8365% of bids allotted at the high yield.

• Those looking to position for a steeper curve (e.g. via 10s vs. 20s, 30s or 40s), given the flattening seen YtD and the recent adjustments in BoJ Rinban purchase bands, may use this auction as a liquidity event for entry into a long 10s leg.
• Still, uncertainty re: BoJ policy in the months ahead may limit steepener strategies to a tactical horizon.
• Elsewhere, the allure of new paper will be a positive for demand, as will the assumed yield pickup vs. the current on-the-run 10s.
• March’s auction was particularly well received, as it acted as a liquidity event for short cover ahead of the latest BoJ decision. This means that the auction metrics seen last time out could skew perception re: the strength of impending auction.
• We also note that the events of the last few weeks have triggered a round of short cover in JGBs. A reduction in the short base is another negative for demand.
• All in, there should be enough baseline demand to generate smooth enough takedown, although the above variables muddy the outlook.
• Results due at 0435BST/1235JST.