PREVIEW: 30-Year Supply Due

The Japanese MOF will today sell Y900bn of 30-Year JGB's opening JB#71. The MOF last sold 30-Year debt on June 8, the auction drew cover of 3.388x at an average yield of 0.693%, average price of 100.15, high yield of 0.697%, low price of 100.05, with 5.8287% of bids allotted at the high yield.

• 30-Year JGBs received some support at the backend of last week with positives surrounding the rumoured better than expected tax revenues outweighing worry re: the potential for upsized long end issuance surrounding a supplementary budget which could be deployed ahead of a snap election (which many expect to be called in September). Still, the slight concession ahead of today's auction provides a more attractive entry point (well within the confines of the recent range), while the allure of fresh paper may also bolster demand.
• The 20-/30-Year yield spread hovers around the post COVID steeps, which may encourage the establishment of some longs in 30s from a relative value perspective. The 20-/30-/40-Year butterfly traded out towards the YtD wides on Monday, but that strategy has corrected a little. Nonetheless, the current levels of that particular butterfly do not reveal any signs of worry re: relative value matters, and may result in some demand itself. We should caution that the relatively steep 30-Year spreads vs. both the 10- & 20-Year benchmarks may reflect the carry & rolldown benefits of the shorter maturity tenors given expectations for a low vol. summer. This presents some risk to the implementation of 10-/30- & 20-/30-Year flatteners, especially in terms of medium-term positions, which could limit demand on that front.
• There may also be some interest to enter long 30s in ASW terms, although there has been a lack of corrective pressure in that space of late.
• Results due at 0435BST/1235JST.