PREVIEW - 20-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y1.2tn of 20-Year JGBs, re-opening JB#185. The MOF last sold 20-year debt on 13 July 2023, the auction drew cover of 3.382x at an average yield of 1.070%, an average price of 100.49, a high yield of 1.072%, a low price of 100.45, with 72.0597% of bids allotted at the high yield.

• Today's auction also comes on the heels of mixed outcomes for August’s 10- and 30-year JGB supply. The 10-year auction on August 1 yielded relatively poor results as the low price failed to match predictions, and both the cover ratio and tail saw their worst outcomes since May. In contrast, last week’s 30-year supply saw good digestion, with the cover ratio increasing to its highest level since Jan’22. Additionally, the auction tail was the shortest since Feb’22.
• While today’s auction will not attract those investors looking for new bond issuance, the desire to extend portfolio duration may generate solid demand, particularly after the good digestion of 30-year supply at last week’s auction.
• However, it is important to acknowledge that sentiment towards longer-dated global bonds has turned pessimistic over the past month.
• There are other positive factors to consider. Firstly, the current yield level for the 20-year JGB is the highest since February. Furthermore, the 10/20 yield curve is at its steepest since March. 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.