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 27 September, with the auction drawing cover of 2.363x at a high yield of 1.520%, low price of 84.61, with 85.7142% of bids allotted at the high yield.

• Prevailing yield levels in the secondary market sit ~20bp above the high yield witnessed at the previous 40-Year auction, although a feeling of broader stabilsation is perhaps more notable in the core global FI sphere this time around, which bodes well for the auction.
• The likes of the 20-/40- & 30-/40-Year JGB spreads operate within touching instance of their respective cycle steeps, which is another positive for demand.
• Ultimately, we expect domestic life insurers and pension funds to facilitate smooth takedown at today’s auction, given steep curves, calmer bond markets, the seemingly impending slowing of Fed rate hikes and still elevated FX hedging costs contributing to that source of demand.
• Also note that last month’s auction provides a relatively low bar from a comparison standpoint.
• Results are due at 0335GMT/1235JST.