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Expiries for Sep22 NY cut 1000ET (Source DTCC)

US TSY FUTURES

BLOCK, 5Y Buy

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The Japanese MOF will today sell Y600bn of 40-Year JGB's re-opening JB#14. The MOF last sold 40-Year debt on May 27, the auction drew cover of 2.802x at a high yield of 0.710%, low price of 99.65, with 68.2525% of bids allotted at the high yield.

  • 40s have cheapened in recent sessions, and now yield ~75bp, therefore they provide a slightly more attractive outright entry point vs. the levels that prevailed at the previous round of 40-Year supply.
  • There is also some relative value appeal, with the 20-/40- and 30-/40-Year yield spreads operating at or near cycle highs into supply.
  • The recent steepening of the aforementioned spreads may represent demand for carry & roll, given the subdued volatility in the space. There may also be an aspect of worry creeping in re: issuance burden ahead of the expected announcement of a fiscal support package in the lead up to a general election later this year.
  • Some desks have argued that the previous potential drivers of the steepening impetus have run their course, and recommend using the auction to enter flatteners.
  • Results due at 0435BST/1235JST.