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 17 May 2023, the auction drew cover of 3.688x at an average yield of 0.992%, an average price of 101.79, a high yield of 0.994%, a low price of 101.75, with 40.6651% of bids allotted at the high yield.

• The 20-year JGB auction today takes place after 30-year JGB supply in early June sees smooth digestion. However, the 30-year cover ratio down ticked to 3.076x from 3.489x at May auction. It is important to note however that the May cover ratio was the highest level observed at a 30-year auction since January 2022.
• Today’s auction also comes after May’s 20-year supply sees the highest cover ratio since May 2022. That result is consistent with the latest data from the Japan Securities Dealers which revealed that trust banks, often seen as proxies to pension funds, purchased ¥1.27 trillion of debt with original maturities of more than 10 years. (see link ICYMI)
• However, there are some negative aspects to consider. Firstly, the current yield level for the 20-year bonds is lower than what was observed at the three previous monthly auctions.
• Moreover, the 20-year JGB's richness in relation to the 10/20/30-year butterfly is also at a peak for this year's auctions. This could also potentially pose a challenge to today's auction outcome.
• Results are due at 0435 BST/1235 JST.