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 26 September 2023, the auction drew cover of 2.950x at a high yield of 1.725%, a low price of 87.87, with 55.8514% of bids allotted at the high yield.

• The late September auction of 40-year JGBs was solidly absorbed, as the high yield came in lower than dealer expectations and the cover ratio increased to 2.950x compared to 2.541x during the late-July auction. This marked the second consecutive increase in the cover ratio after it hit the lowest seen at a 40-year auction since November 2022 at the May auction.
• Today's 40-year auction is significant as it's the first one following the BOJ's shift to a 1% YCC reference rate.
• Today’s supply follows solid demand metrics at the 20- and 30-year JGB auctions in November.
• It's important to note that the current 40-year auction is taking place with the outright yield approximately 20bps higher compared to the late September offering, but around 25bps lower that the cycle peak of 2.18% set in late October.
• Although the current 20/40 yield curve sits mid-range with respect to the past 12-months, it still maintains a steep profile when viewed from a longer-term perspective.
• Results are due at 0335 GMT / 1235 JST.