PREVIEW - 20-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y1.2tn of 20-Year JGBs, re-opening JB#184. The MOF last sold 20-year debt on 20 April 2023, the auction drew cover of 2.963x at an average yield of 1.085%, an average price of 100.23, a high yield of 1.096%, a low price of 100.05, with 26.6910% of bids allotted at the high yield.

• The 20-year JGB auction taking place today follows last week's mixed results for 10- and 30-year JGB supply. While the former performed relatively poorly, the latter showed the strongest cover ratio since January 2022.
• On the negative side, the outright 20-year yield level is lower than the level that prevailed at the last two monthly auctions. Those auctions showed tepid demand with low cover ratios, particularly March’s which was the lowest observed at a 20-year auction since ’12. The March auction also saw a wide tail.
• The richness of the 20-year on a 10/20/30-year butterfly, which sits at comparable levels to that prevailing at the April auction, could also present a headwind for today’s auction result.
• However, with the new fiscal year underway, Japanese investors are anticipated to allocate capital to the super-long end of the JGB curve due to high FX-hedging costs. This move is expected to be driven by domestic life insurers and pension funds, particularly as yields surpass 1.00%. The recent 30-year auction provides additional evidence supporting this argument.
• Results are due at 0435 BST/1235 JST.