PREVIEW: 10-Year JGB Supply Due

The Japanese Ministry of Finance (MOF) will today sell Y2.7tn of 10-Year JGBs, re-opening JB#370. The MOF last sold 10-year debt on 4 April 2023, the auction drew cover of 3.774x at an average yield of 0.456%, an average price of 100.41, a high yield of 0.468%, a low price of 100.30, with 80.3317% of bids allotted at the high yield.

• Last month’s looked particularly weak with the cover ratio falling to the lowest level observed at a 10-year JGB auction since August ’22. A reduction in the short base and questions regarding the near-term trajectory for BoJ monetary policy appeared to weigh on demand.
• Today's auction may see a stronger bid after the BoJ left its major monetary levers unchanged at its April meeting, Governor Ueda’s first meeting atop the central bank.
• Nonetheless, with growing inflationary pressure in Japan suggesting a near-term tweak to YCC is still on the table over the coming months, demand is likely capped. Governor Ueda cited in Parliament today encouraging trends in inflation and suggested that the BoJ may end YCC once the 2% inflation target is reached in a stable and sustainable manner.
• The relative cheapness of 10-year JGB versus futures, proxied by the spread between the 7- and 10-year JGBs, should support the bid along with traders' short covering positions.
• Results are due at 0435 BST/1235 JST.