PREVIEW - 20-Year JGB Auction Due

The Japanese Ministry of Finance (MoF) will today sell Y1.0tn of 20-Year JGBs. The MoF last sold 20-year debt on 14 March 2024, the auction drew cover of 3.007x at an average yield of 1.559%, an average price of 96.08, a high yield of 1.585%, a low price of 95.70, with 8.4788% of bids allotted at the high yield.

• Today's issuance of 20-year JGBs comes after March’s auction showed poor demand metrics. The low price failed to meet dealer expectations, the cover ratio decreased to 3.007x from 3.126x and the auction tail lengthened materially.
• Today's auction however follows on the heels of solid results at April’s 10- and 30-year JGB supply. The 10-year JGB auction was smoothly absorbed, with the low price beating wider expectations, the tail shortening and the cover ratio increasing. Like 10-year supply, albeit less convincingly, the 30-year auction set a positive tone for the JGB market that had been under pressure since mid-December due to anticipated policy tightening by the BoJ.
• The current auction presents an outright yield that is 5-10bps higher than the level observed at March’s outing and only 10-15bps lower than the cycle high set in late October.
• Although one might anticipate an uptick in demand on its own, it's crucial to factor in the recent decline in sentiment towards longer-dated bonds worldwide, particularly in light of yesterday's unexpectedly high US CPI data.
• The 10/20 yield curve and the 20-year JGB relative to the 10/20/30 butterfly are at similar levels to the mid-March auction.
• Results are due at 0435 GMT / 1235 JST.