PREVIEW: 20-Year JGB Supply Due

The Japanese MOF will today sell Y1.2tn of 20-Year JGBs, opening JB#184. The MOF last sold 20-Year debt on 16 March 2023, the auction drew cover of 2.846x at an average yield of 1.079%, average price of 105.22, high yield of 1.118%, low price of 104.55, with 41.4285% of bids allotted at the high yield.

• Still elevated FX-hedging costs for Japanese investors and the recent, well-documented widening of BoJ JGB purchase bands could provide support for demand at today’s auction.
• Re: the former, the turn of the Japanese FY year could encourage deployment of capital into the super-long end of the JGB curve on the part of domestic life insurers and pension funds, especially with yields over 1.00%.
• The allure of fresh paper is also an incremental positive.
• On the negative side, outright yield levels of current 20s continue to operate around levels that prevailed at last month's auction (that auction saw a wide tail, alongside the lowest cover ratio observed at a 20-Year auction since ’12), even with the apparent depths of the global bank tumult in the rear-view, while the potential for a BoJ policy tweak in the coming months (although a policy move as soon as next week is unlikely), along with richness of 20s on the likes of the 10-/20-/30-Year butterfly and a lack of clear value in ASW terms present further headwinds.
• Results due at 0435BST/1235JST.