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 17 August 2023, the auction drew cover of 2.795x at an average yield of 1.322%, an average price of 96.51, a high yield of 1.385%, a low price of 95.55, with 12.5925% of bids allotted at the high yield.

• Today's issuance of 20-year bonds follows a previous auction that experienced significant challenges. During the previous auction, the low price failed to meet dealer expectations. Additionally, the cover ratio saw a substantial decline, and the tail extended to its longest point since at least 2018.
• Today's auction also comes on the heels of mixed outcomes for September’s 5-, 10- and 30-year JGB supply. This week’s 5-year supply saw stronger than expected demand, with the auction's low price beating dealer expectations, the cover ratio rising notably to 4.415x and the tail shortening. However, September’s longer-dated auctions saw generally poor digestion.
• While an outright yield just shy of the highest level this year might generate some demand, recent longer-dated JGB auction outcomes suggest that local investors may be inclined to seek higher yields or prefer more time to assess the new YCC framework and the BoJ's policy outlook before significantly increasing their allocations to longer-dated JGBs.
• There are however other positive factors worth considering as well. Notably, the 10/20 yield curve is currently at its steepest since March, and the 20-year JGB is trading at its most attractive level relative to the 10/20/30-year butterfly since March as well.
• Results are due at 0435 BST/1235 JST.