PREVIEW - 30-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y900bn of 30-Year JGBs, opening JB#79. The MOF last sold 30-year debt on 6 June 2023, the auction drew cover of 3.076x at an average yield of 1.257%, an average price of 103.09, a high yield of 1.263%, a low price of 102.95, with 34.0713% of bids allotted at the high yield.

• Today's 30-year bond supply follows a notable decline in the cover ratio and an increase in the tail observed at the June auction. However, it should be noted that the cover ratio in May reached the highest level seen in a 30-year auction since January 2022.
• We anticipate a smooth 30-year tender today, with solid demand expected from investors eager for new issuance and those looking to extend their portfolio duration. As speculation surrounding BoJ policy revisions has subsided, investors who have remained on the sidelines may return to the market in July.
• The slight relative cheapening of the 20-/30-/40-year butterfly spread over the past month could provide additional support during today's auction. Nevertheless, it is important to acknowledge that the 30-year bond remains expensive from a longer-term perspective.
• Recent downside surprises in Tokyo inflation data as are likely to further bolster auction demand today, as demonstrated by the successful uptake of 10-year supply earlier this week.
• Factors that may potentially affect demand negatively include the lower outright yield and a slightly flatter yield curve compared to the previous auction.
• Results are due at 0435 BST/1235 JST.