PREVIEW: 30-Year JGB Supply Due

The Japanese MOF will today sell Y900bn of 30-Year JGBs re-opening JB#75. The MOF last sold 30-Year debt on Jul 7, the auction drew cover of 3.245x at an average yield of 1.234%, average price of 101.43, high yield of 1.240%, low price of 101.30, with 19.3059% of bids allotted at the high yield.

• The recent stabilisation away from cycle cheaps, aided by wider recession worry in Europe & the U.S. and the BoJ’s ability to protect the upper limit of its permitted 10-Year JGB yield trading band, is a positive for the supply on one hand, although the degree of the move away from cycle cheaps (20bp) may limit takedown from being quite as strong as it could be.
• 30s aren’t particularly compelling on the likes of the 20-/30-/40-Year butterfly, which operates around the middle of the YtD range. Meanwhile, the 10-/30- & 20/30-Year curves remain steep, although 10s and 20s provide a much more compelling carry and roll proposition, prenting a bit of a murky RV proposition.
• The recent re-shoring of Japanese capital, which was seemingly led by life insurers and pension funds amid the move higher in bond market volatility and elevated FX-hedging costs, bodes well for today’s auction, especially given domestic life insurer interest in building longer dated JGB holdings (as expressed in their semi-annual investment intention interviews).
• The recent unwind of JGB futures basis will help with smooth takedown.
• Results due at 0435BST/1235JST.