PREVIEW 40-Year JGB Supply Due

The Japanese MOF will today sell Y700bn of 40-Year JGBs re-opening JB#15. The MOF last sold 40-Year debt on July 26, with the auction drawing cover of 2.705x at a high yield of 1.345%, low price of 89.43 and 40.0584% of bids allotted at the high yield.

• The recent shunt higher in yields across core global fixed income markets, whether derived through terminal rate pricing surrounding the world’s major central banks or worry surrounding UK fiscal policy, has filtered through to the super-long end of the JGB curve, where the BoJ has less relative control, given the structure of its YCC mechanism.
• This leaves the 10-/40-Year curve at multi-year steeps into supply, with fresh concession seen this morning, perhaps on auction demand-related worry.
• The ultimate question is whether or not the move to fresh cycle cheaps for 40s, in an outright sense, and vs. the likes of 10s on the curve, will be enough to draw the domestic pension and life insurer community off the sidelines (Some have already expressed caution when deploying capital into longer dated JGBs given recent market dynamics).
• Ongoing market volatility and the recent repricing is not the best recipe for duration demand.
• Results are due at 0435BST/1235 JST.