PREVIEW: 20-Year JGB Supply Due

The Japanese MOF will today sell Y1.2tn of 20-Year JGBs, re-opening JB#183. The MOF last sold 20-Year debt on 21 February 2023, the auction drew cover of 3.048x at an average yield of 1.306%, average price of 101.48, high yield of 1.314%, low price of 101.35, with 88.9563% of bids allotted at the high yield.

• The recent shunt lower in outright yields, coupled with curve flattening and threat of further BoJ Rinban tweaks, provide some headwinds for today’s supply.
• Meanwhile, 20s operate around the middle of their YtD range on the 10-/20-/30-Year butterfly after bouncing off recent richest levels on that structure.
• Still, outright yields have recovered the 1.00% handle, but sit over 20bp below prevailing levels witnessed at last month’s 20-Year auction.
• Elevated market vol. and the risk of a hawkish repricing re: global central banks also provide some risks for duration demand, which may further limit bidding.
• The proximity to Japanese FY end is a general positive for demand.
• There are some downside risks to the auction given the above factors, although some desks flag potential interest in ASW positions and 20-/30-Year steepeners.
• Results due at 0335GMT/1235JST.