PREVIEW: 30-Year JGB Supply Due

The Japanese MOF will today sell Y900bn of 30-Year JGBs opening JB#75. The MOF last sold 30-Year debt on June 7, the auction drew cover of 3.112x at an average yield of 1.049%, average price of 98.88, high yield of 1.055%, low price of 98.75, with 49.1048% of bids allotted at the high yield.

• The continued observance of elevated hedging costs coupled with the ongoing market volatility should bode well for today’s auction, with these factors, coupled with the steep JGB yield curve, set to promote involvement within the Japanese life insurer community (as was indicated in their semi-annual investment intention interviews).
• Outright, 30s sit ~5bp of the recently observed cycle cheaps, although the move away from cheaps that has been observed in the wider global core FI space may embolden bidders today.
• Note that 30s operate towards the cheaper end of the recently observed range on the 20-/30-/40-Year butterfly, although any such positioning will obviously have to account for carry considerations, with 20s presenting the most attractive carry and roll proposition on the curve at present.
• 30-Year ASW positions may also warrant attention, particularly if the foreign investor community continues to speculate based on the idea of tweaks to the BoJ’s YCC policy settings (with long end swaps a preferred tool of choice).
• The well-documented market functioning issues surrounding a widening of JGB futures/cash basis have subsided a little, but conditions are nowhere near normal, which makes hedging via futures a little trickier, and could deter some from bidding.
• Ultimately, any longs will eye the yield pickup on offer and be hopeful that wider recession fears and the BoJ’s focus on maintaining its current YCC settings will prevail.
• Results due at 0435BST/1235JST.