PREVIEW - 20-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y1.2tn of 20-Year JGBs, opening JB#185. The MOF last sold 20-year debt on 27 June 2023, the auction drew cover of 3.025x at an average yield of 0.948%, an average price of 102.52, a high yield of 0.961%, a low price of 102.30, with 66.8627% of bids allotted at the high yield.

• The 20-year JGB auction today takes place after 30-year JGB supply in early July saw relatively poor digestion. The low price failed to meet dealer expectations and the cover ratio ticked down to 3.027x, its lowest level since March. The 30-year auction tail was also significantly longer than recent auctions, rising to the longest level since Apr-2020.
• The anticipation of new bond issuance and the desire to extend portfolio duration would typically generate strong demand, but doubts arise given this month's 30-year supply.
• However, there are positive factors to consider. Firstly, the current yield level for the 20-year JGB is higher compared to the two previous monthly auctions and is in line with the level observed at the April offering.
• Furthermore, the 10/20 yield curve is steeper compared to the previous two auctions and aligns with the level witnessed during the April offering.
• Lastly, since the last auction, the 20-year JGB has become relatively cheaper in relation to the 10/20/30-year butterfly.
• Results are due at 0435 BST/1235 JST.