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 9 May 2023, the auction drew cover of 3.600x at an average yield of 0.426%, an average price of 100.70, a high yield of 0.435%, a low price of 100.61, with 90.8079% of bids allotted at the high yield.

• Last month’s auction looked particularly weak with the cover ratio falling to the lowest level observed at a 10-year JGB auction since August ’22 and the low price failing to meet wider expectations.
• Today's auction may see a stronger bid given inflation data in May has printed in line to slightly softer at both the national and Tokyo levels. However, it is important to note that comments made by Governor Ueda yesterday may have an impact on the outcome.
• During a speech at a BOJ conference in Tokyo, Governor Ueda emphasised the importance of carefully analysing various economic data and examining underlying inflation trends. He further highlighted there is a growing recognition that we may be experiencing a new normal, distinct from the "low for long" period. (link)
• Another noteworthy observation is the solid demand seen in auctions for 20-year and 30-year JGBs following the previous 10-year auction. This strong demand can be attributed, at least in part, to Japanese investors reallocating their capital to the super-long end of the JGB curve in the current fiscal year. This shift is motivated by the high costs associated with FX-hedging.
• The relative cheapness of 10-year JGB versus futures, proxied by the spread between the 7- and 10-year JGBs, could also support the bid.
• Results are due at 0435 BST/1235 JST.