PREVIEW - 20-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y1.2tn of 20-Year JGBs, re-opening JB#186. The MOF last sold 20-year debt on 21 November 2023, the auction drew cover of 3.540x at an average yield of 1.423%, an average price of 101.19, a high yield of 1.432%, a low price of 101.05, with 8.6021% of bids allotted at the high yield.

• Today's issuance of 20-year JGBs follows a successful November auction, marked by a low-price print above dealer expectations, an increased cover ratio compared to October, and a significant decline in the tail.
• In contrast, December's supply of 30-year JGBs experienced notably poor demand metrics, with the cover ratio plummeting to the lowest level observed in a 30-year auction since 2015, and the tail registering as the longest on record.
• The current auction presents an outright yield slightly lower than the level observed in November and approximately 35 basis points lower than the cycle high set in late October. While a decrease in demand might be expected in isolation, it is essential to consider the improved sentiment towards longer-dated bonds globally since early November, particularly following yesterday’s dovish FOMC decision.
• Supporting the bid tone today is the growing optimism surrounding the BOJ’s policy outcome. A Bloomberg report on December 11 indicated that BOJ officials see little urgency in scrapping the world’s last negative interest rate this month, as they await sufficient evidence of wage growth to support sustainable inflation, according to people familiar with the matter.
• It is also noteworthy that the 10/20 yield curve and the 20-year JGB relative to the 10/20/30 butterfly are at similar levels to the last auction.
• Results are due at 0335 GMT / 1235 JST.