PREVIEW: 10s Hold Attractive C&R, Are Steepeners To Crowded?

The Japanese MOF will today sell Y2.6tn of 10-Year JGB's re-opening JB#359. The MOF last sold 10-Year debt on August 4, the auction drew cover of 3.638x at an average yield of 0.018%, average price of 100.80, high yield of 0.021%, low price of 100.77, with 61.8502% of bids allotted at the high yield.

• The outright cheapening witnessed at the back end of last week allowed fresh longs to be established, although primary supply may still tempt fresh longs into the fray.
• A relatively flat 7-/10-Year yield spread may dissuade participants from entering long 10s vs. futures positions, although the carry and roll of 10s (most attractive benchmark on the curve) at least partially offsets this.
• The bias for curve steepener plays may build on the carry advantage of the sector, although this position may be a little crowded by now.
• The 5-/10-/20-Year fly sits comfortable within the recent range.
• Chief Cabinet Suga's apparent move to favourite re: replacing outgoing PM Abe likely removes/mitigates at least one risk factor ahead of supply.
• Results due at 0435BST/1235JST.