PREVIEW - 30-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y900bn of 30-Year JGBs, re-opening JB#78. The MOF last sold 30-year debt on 6 April 2023, the auction drew cover of 3.186x at an average yield of 1.353%, an average price of 101.00, a high yield of 1.357%, a low price of 100.90, with 64.4970% of bids allotted at the high yield.

• Today’s 30-year supply comes two days after 10-year JGB supply goes relatively poorly.
• Governor Ueda’s comments in Parliament on the day auction regarding encouraging trends in inflation and a willingness to end YCC once the 2% inflation target is reached in a stable and sustainable manner look to have weighed on the 10-year auction result. A similar issue could arise at today’s auction.
• A cheapening in the 20-/30-/40-year butterfly and an allure of new paper aided the takedown at last month’s 30-year auction. A further relative cheapening over the past month should be supportive for today’s auction, although the 30-year remains rich on a longer horizon.
• Still, the cover ratio, at 3.186x, wasn’t particularly firm at the April auction with the flatness of the curve and the richening in outright levels likely leaving some investors on the sidelines. With these metrics at similar or less favourable levels, these factors could be at play again today.
• The recent string of announcements from local participants regarding portfolio adjustments out of hedged offshore debt in Yen bond holdings may prove to be a supportive factor, although it didn’t play heavily at this week’s 10-year auction.