PREVIEW: 20-Year JGB Supply Due

The Japanese MOF will today sell Y1.2tn of 20-Year JGBs openingB#1 J81. The MOF last sold 20-Year debt on June 23, the auction drew cover of 3.381x at an average yield of 0.905%, average price of 98.23, high yield of 0.913%, low price of 98.10, with 42.0370% of bids allotted at the high yield.

• The combination of a steep domestic curve and the fact that outright 20s are sitting just off their cycle cheaps will likely entice bidders at today’s auction, particularly those from within the domestic lifer community, given the declarations in their semi-annual investment intentions interviews.
• The unwind of the futures basis blowout observed in June should also support demand, via increased hedgability.
• Japanese investors continue to shed offshore paper on the back of elevated hedging costs and increased market vol., which should bode well for long end JGBs, adding to the previously outlined supportive factors for supply.
• Still, there isn’t much in the way of relative value appeal at present, which presents a minor negative for today’s auction.
• Results due at 0435BST/1235JST.