PREVIEW: 30-Year JGB Supply Due

The Japanese MOF will today sell Y900bn of 30-Year JGB's, opening JB#73. The MOF last sold 30-Year debt on December 7, the auction drew cover of 3.214x at an average yield of 0.673%, average price of 100.65, high yield of 0.677%, low price of 100.55, with 14.8255% of bids allotted at the high yield.

• Multi-month highs for longer dated JGB yields, coupled with interest in super long paper on the part of Japanese life insurers, will likely facilitate a relatively smooth auction.
• There is a lack of obvious relative value appeal, with the likes of the 5/-30 Year, 20-/30-Year and the 20-/30-/40-Year butterfly failing to provide little in the way of obvious opportunities.
• Still, if participants expect paper in the belly & 10s to cheapen further on hawkish FOMC developments they may look to initiate flattener plays, perhaps even in 7-/30-Year spreads or JGB futures vs. 30s. Negative carry is a worry with such positions, meaning that participants would have to expect relatively swift market moves to outweigh carry related losses.
• All in all, outright demand should provide smooth enough passage when it comes to today’s auction, although the situation surrounding relative valuation-linked demand is a little hazier.
• Results due at 0335GMT/1235JST.