PREVIEW: 20-Year JGB Supply Due

The Japanese MOF will today sell Y1.2tn of 20-Year JGB's opening JB#175. The MOF last sold 20-Year debt on December 10, the auction drew cover of 3.011x at an average yield of 0.366%, average price of 100.62, high yield of 0.372%, low price of 100.50, with 14.6471% of bids allotted at the high yield.

• The auction comes at a difficult time, given the recent BoJ source reports that have done the rounds, pointing to the potential for the BoJ to at least consider the adoption of a looser permitted trading band for 10-Year JGB yields.
• Still, the recent speculation has allowed 20-Year JGB yields to move back towards their July highs, with the 20-Year cheapening on the 10-/20-/30-Year butterfly, to sit just outside the range witnessed in that particular fly during November & December.
• Various desks have also pointed to a lack of short covering need among dealers, which may add to the aforementioned headwinds.
• Ultimately, relative and outright valuation needs to be assessed against the broader backdrop, which is raising questions at present, with most desks seemingly cautious ahead of supply.
• Results due at 0335GMT/1235JST.