PREVIEW: 30-Year JGB Supply Due

The Japanese MOF will today sell Y900bn of 30-Year JGBs, opening JB#77. The MOF last sold 30-Year debt on 6 December, the auction drew cover of 3.001x at an average yield of 1.481%, average price of 98.32, high yield of 1.489%, low price of 98.15, with 26.9014% of bids allotted at the high yield.

• This is the first major super-long JGB auction since the BoJ’s surprise YCC tweak, although the 10-Year auction that we saw last week was well received, which lessens that particular burden/worry area into this round of supply.
• The allure of new paper, shift higher in yields seen post-BoJ (30s operate just off of cycle highs registered back in October), uptick in BoJ Rinban purchases, which will turn the supply/demand picture even more in favour of JGBs, and seasonality surrounding life insurer capital deployment (along with ongoing global market vol. and elevated FX hedging costs for Japanese market participants) are all set to be supportive.
• Countering this, at least partially, will be some worry re: the potential for further BoJ policy tweaks.
• Elsewhere, the 20-/30-/40-Year butterfly sees 30s operating just off richest levels observed since the depths of the initial COVID outbreak.
• The auction should pass smoothly enough on the aforementioned positives, although demand is likely to stem from outright positioning, as opposed to relative value plays, given the above richness.
• Results due at 0335GMT/1235JST.