PREVIEW: 20-Year JGB Supply Due

The Japanese MOF will today sell Y1.2tn of 20-Year JGBs re-opening JB#180. The MOF last sold 20-Year debt on April 14, the auction drew cover of 3.102x at an average yield of 0.724%, average price of 101.31, high yield of 0.742%, low price of 101.00, with 98.7309% of bids allotted at the high yield.

• Outright 20-Year yields have stabilised a little shy of their March peak, although it is hard to be certain if this will entice buyers, given the continued offshore bond market vol.
• Lifers should provide one clear source of demand, given the preferences outlined in their latest round of semi-annual investment intention interviews, with the BoJ-derived steepness of the domestic curve set to keep them enticed when it comes to super-long JGBs. The volatility of offshore bond markets and recent surge in FX hedging costs provide further layers to this discussion, beyond the relative steepness of the domestic curve.
• There isn’t much in the way of overwhelming relative value appeal on the likes of the 10-/20-/30-Year fly, with 20s sitting off of cycle cheaps on that structure, although those that expect the likes of the 20-/30- & 20-/40-Year curves to steepen further may provide a (modest) demand source.
• Carry also factors into any curve positions (and indeed outrights given current yield levels), with 20s providing the most attractive carry and roll on the curve.
• Desks have also flagged short covering requirements as a supportive factor ahead of supply.
• Results due at 0435BST/1235JST.