PREVIEW - 40-Year JGB Auction Due

The Japanese Ministry of Finance (MOF) will today sell Y700bn of 40-Year JGBs, re-opening JB#16. The MOF last sold 40-year debt on 27 July 2023, the auction drew cover of 2.541x at a high yield of 1.465%, a low price of 95.05, with 7.8431% of bids allotted at the high yield.

• The late July auction of 40-year JGBs produced mixed results, as the high yield exceeded dealer expectations, but there was a higher cover ratio versus the May auction. It's worth noting, though, that the cover ratio in May had reached its lowest level since November 2022.
• Today's 40-year auction is significant as it's the first one following the BOJ's adjustment to the YCC framework on July 27th. It also comes in the wake of the BOJ’s ‘dovish hold’ on Friday.
• Today’s supply follows mixed results at the 20- and 30-year JGB auctions in September. 30-year supply saw poor digestion, with the low price failing to meet dealer expectations, the cover ratio declining and the tail extending to the second longest since April’20. By contrast, the 20-year auction, held a week later, displayed robust demand metrics.
• It's important to note that the current 40-year auction is taking place with the outright yield higher by approximately 35bps compared to the late July offering.
• Although the 20/40 yield curve is slightly flatter compared to the July auction, it still maintains a steep profile when viewed from a longer-term perspective.
• As this marks the first auction post-YCC adjustment, market observers will closely monitor how well the supply is absorbed, given the conflicting factors of rising yields in longer-dated global bonds and the ongoing trend of local market participants shifting their portfolios from hedged offshore debt to holdings in yen-denominated bonds.
• Results are due at 0435 BST/1235 JST.