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PREVIEW - 40-Year JGB Auction Due

JGBS AUCTION

The Japanese Ministry of Finance (MOF) will today sell Y700bn of 40-Year JGBs, re-opening JB#15. The MOF last sold 40-year debt on 28 March 2023, the auction drew cover of 2.694x at a high yield of 1.465%, a low price of 86.23, with 92.5781% of bids allotted at the high yield.

  • At the late March auction, the steepness of the JGB curve played a crucial role in mitigating concerns about the decline in outright yields from January levels, facilitating a smooth supply process. The cover ratio reached its highest level for a 40-year auction since July 2022.
  • Subsequently, outright yields have experienced further declines, accompanied by a flattening of the yield curve. This development may cause some investors to move on the sidelines. However, given the steepness of the curve from a longer-term perspective, the reduction in demand may not be significant.
  • Another potential positive factor supporting demand is the underlying trend of local participants shifting their portfolios from hedged offshore debt to Yen bond holdings, particularly now that the BoJ has diminished expectations for higher yields. This portfolio shift has provided additional support to recent longer-dated auctions, particularly evident in the 30-year JGB auction on May 11th.
  • Results are due at 0435 BST/1235 JST.
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